USD rose to the highest level in four months in last trading session of the week as the positive economic data increased expectations that US Federal Reserve (FED) will raise interest rates until the end of the year. In trading sessions of 20th July, the US dollar index measuring the strength of the greenback versus a basket of currencies was closed at 97.50 raising to 0.5%, the highest since March 2016.
According to the Association of American national real estate, home sales in the country last month rose 1.1% in June, the fourth consecutive rising month, the highest level since February 2007. On the job market, Labor Department said the number of applications for unemployment benefits on 16th of July firstly fell 1,000, to 253,000, a 13-week low. Data released earlier also showed that retail sales, consumer prices and industrial production in the US in June rose further. Meanwhile, reports of non-agricultural jobs in June announced earlier this month, also stressed the labor market is recovering strongly and allay concerns about the deceleration of economic growth.
The recently released positive data on US economy increases expectations of investors that Fed will raise interest rates before the end of this year. The percentage predicting the Fed will raise interest rates by 0.25% from the end of the year has risen to 46% from 12% in earlier this month.
Periodic policy meeting of Fed will take place on 26th and 27th of July, and in anticipation of observers, the agency will keep interest rates at this meeting and wait for the evaluation of the impact of the UK leaving the EU for US economic outlook before adjusting interest rate policy. In spite of not giving policy direction for the coming period, any positive assessment of Fed for the US economy bring considerable support for USD.
British Pound fell sharply in the last session of the week because British economy shows worrying signs of the first month since UK chose to leave the EU. Markit survey published on Friday showed that both PMI manufacturing and services in July of UK will fall below 50, this indicates contraction. In July PMI fell to 47.7 from 52.4 in the previous month. Thus the index has fallen to the lowest level since early 2009. July's PMI warns UK economic growth will decline significantly in the third quarter. Most analysts predict that the Bank of England (BoE) will cut interest rates at its meeting next August and the issue is whether the cut will be 0.25% or 0.5%.
In the policy meeting in May 6th, 2016, the US Federal Reserve System (Fed) announced all decisions of raising interest rates of US dollar will be delayed until Fed gauges the consequences of leaving European Union (EU) of England. It is the content of the minutes of the Fed's most recent meeting was posted on Wednesday, Reuters quoted.
Specifically, according to the minutes of the Fed meeting results on 14th and 15th of June (before Brexit), Fed officials expressed very worrying psychology about the consequences of Brexit.
"The members of Fed agreed that before thinking of the dollar interest rate adjustments or change of oriented monetary policy, we need more data on the impact of Bexit on economy", Fed officials stressed.
From time of the meeting took place, fears of Fed officials grow over time. On Wednesday, a senior Fed official, Daniel Tarullo, confirmed just not thinking of raising interest rates until inflation in the US reaches a target.
Brexit has made the global financial markets "stunned", in just 1 day after the historic vote in the UK, global stock markets lost $2 trillion.
Until now, the post-Brexit worries are continuing due to that investors expected it takes many years for Britain and EU to be able to reach a consensus on the regulation of the financial sector, trade and immigration.
On Wednesday, government bond yields fell to US record low, many investors believe that at least until 2017, the Fed could raise the base rate of dollar.
"We will take several consecutive months to have positive signs of US economy when it is possible to adjusting new base rate of dollar", chief investment officer at Wells Fargo Funds Fund Management, said Brian Jacobsen, said.
Since Brexit, US dollar has constantly increased, by reaching more than 2% increase compared to the other currencies in basket of major currencies of the world. Dollar rose, this adversely affects US export. After the minutes of the May meeting of the Federal Reserve was published in June 2016, US dollar fell slightly.
Before Brexit, Fed said possibility ofraising interest rates two times in 2016 to prevent US economy from overheating. Since Brexit, many Fed officials repeatedly have warned extreme caution with this decision and it is too early to assess the full impact of Brexit.
Although the US non-manufacturing sector signaled positive but business investment and recruitment activities of the business do not grow respectively.
After Brexit, British pound has depreciated 13% against USD, particularly on Wednesday, the British pound fell by 1%.