USD softens, but climb should continue in September
By Arnaud Masset
The greenback has weakened slightly on Thursday the 17th in the wake of yesterday’s publication of the Federal Reserve Open Market Committee’s July meeting minutes, but we still expect the USD to climb next month. In the FOMC’s meeting on 19-20 September, we expect it will commit to a schedule for unwinding its overstocked bond positions, and in in 12-13 December meeting we believe it will raise its prime lending rate.
The FOMC’s position in July was broadly in line with its position in June. Nonetheless, the markets reacted with uncertainty, given the varied positions of committee members reflected in the minutes. Some members want to start normalising Fed policy now, but the majority prefer to wait. The minutes note: “several participants were prepared to announce a starting date for the program at the current meeting, most preferred to defer that decision until an upcoming meeting while accumulating additional information on the economic outlook”. In addition, the minutes showed that despite the strengthening of the jobs market, many members were worried about inflation levels. “Many participants saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.”
Russia ruble to sink slightly versus USD
By Yann Quelenn
The RUB should weaken slightly in the short term to around 60 per USD, as it is pushed both up and down by various factors.
On the down side, Russia’s retail sales in July – to be published today – are expected to rise 1%, slightly less than the 1.5% gain in June. Moreover, we believe that before year-end the Central Bank of Russia will normalize its prime rate at around 8%, down from its current rate of 9%, which the CBR held unchanged at its last meeting in late July.
These will mostly balance out the ruble’s positives: improving economic fundamentals, and a steady, low unemployment rate (figures to be released today) of 5.1%.