It looks like the Federal Reserve is not likely to raise interest rates anytime soon. At the FOMC meeting last week, the central bank indicated pointedly that a September hike was not in the cards. The poor growth numbers released at the same time lowered the odds even further.
The chances of a hike by the end of this year have fallen to about 1 in 3. And according to Morgan Stanley chief global currency strategist Hans Redeker, the dollar is set to fall 5 percent in the next few months. Redeker said that U.S. economic data is only going to get worse and cited in-house indicators showing U.S. domestic demand is set to fade in the coming months.
The dollar reacted immediately to the Morgan Stanly report. The greenback fell 1.3 percent Friday, capping its worst week since April, after rallying in recent weeks on mounting speculation the Fed will raise rates in the coming months following better-than-expected data on jobs, retail sales and industrial production.
Hopes for a rate increase were dashed Wednesday after an unenthusiastic policy statement from Fed officials that signaled only a gradual pace towards tighter monetary policy. They were dampened further after Friday’s GDP report showed a 1.2 percent annualized increase in the April-June period, less than the 2.5 percent median forecast of economists surveyed by Bloomberg. The Commerce Department is now saying that U.S. second-quarter gross domestic product advanced at about half the rate economists had forecast.
Dollar Index
The Dollar Index had rallied from 93.00, the low from the day of the UK referendum to a high near 97.60 that it had tried several times over the past week or so to overcome. The sell-off on the disappointing GDP news sent to near 95.30, which is a 50% retracement of the move and the lows after the June jobs data in early July.