According to Federal Reserve employees, the U.S. economy’s second quarter did not present the rebound in the markets that were expected. A good portion of the blame comes from how strong the U.S. dollar is compared to the rest of the world’s currencies. Regardless, it seems that a rate hike is still inevitable, sources say. Net exports have gone down about 1.9 percent, which is too much to blame on just the dollar, but the economy still seems to be moving in the right direction for those that make monetary policy. The rest of the decline appears to be coming from other countries seeing their production rising. The growth rate in the jobs arena is also starting to slow down.
It’s a bit of a surprising piece of news, and it’s a little more negative than was expected, but despite all of this, the Fed Governor, Lael Brainard, says that a rate hike is still likely. For those that have been following the Fed’s movements, you will know that a decision on a rate hike is expected to be finalized soon and that it should be implemented sometime in September or October. A slow economy during Q2 will likely mean the latter portion of this estimate will become more realistic.
The consequences of a rate hike in such a situation may actually have a more positive impact. The thought process was that a rate hike would begin to drive down U.S. stock markets. Experts believe that this will make it more difficult for companies to get access to extra capital and it will slow down private expansion. But, that usually presupposes that the dollar is weak. Strong markets and strong currencies do not typically go hand in hand, but that has not been the case recently. In fact, the market has been quite strong for a while, and the dollar has been growing significantly in value because of the currency issues that the other major nations are having, especially the euro and the Japanese yen. Because of this, there is a good chance that the slowdown in the market will not be a major concern of the Fed’s and that they will do what they need to to stabilize the dollar and bring normalcy back to world markets. The heightened dollar might even protect the markets from further declines if conditions keep progressing. This remains to be seen.
Either way, as a trader, you need to be aware of what the possibilities are. It doesn’t matter if you are trading 5 minute binary options, day trading stocks, or using a bunch of leverage to multiply your short term earnings in the Forex market. This information applies to all of these markets as it is all related. Having a good view of the totality of the U.S. economic situation is a good way to prepare yourself for trading multiple assets at once. You can benefit from trading both individual stocks, indices, and currency pairs that involve the U.S. dollar. Remember, when the Fed says something, markets react quickly. Having a game plan to trade this news is smart and it allows you to profit in areas beyond what you normally might. For example, a Forex trader might never venture away from their Forex broker, but now that they have a better understanding of how the dollar and the major indices are related, trading the S&P 500 suddenly becomes a viable and profitable choice. In other words, this type of knowledge opens up more opportunities to the savvy trader. This is never a bad thing.