The United States Federal Reserve has voted in favour of keeping interest rates at the current levels of close to zero.Although there was universal agreement among all the FOMC members, the improving state of the US economy was highlighted in the latest statement.The FOMC said, “Economic activity has been expanding moderately in recent months.” This would seem to indicate that the improving economic climate would point to an interest rate rise sooner rather than later. Therefore, the bets are now on the Federal Reserve nominalizing the interest rate environment in September rather than December.
The FOMC in its statement noted the improvement on the Job and Real Estate market. Furthermore, there was also the satisfaction that consumer spending has finally begun to increase.The inflation picture is still not at the target level, however, the Federal Reserve stated that a sustained move to the 2% objective will happen.
The FOMC through its action of deliberate forward guidance has now prepared the market for a period of higher interest rates. The US Dollar off the back of last night’s statement has appreciated during the early morning trading.The British Pound, however, has traded in a tight range and has remained above the previous day’s lows. This is due to the expectation that the Bank of England soon will also begin to increase interest rates.
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