The Course of Monetary Policy?
Foreign currency can have a meaningful positive or negative effect on a portfolio’s performance, depending on the movement of the local currency vs. the U.S. dollar.
Foreign Currency Update
- The U.S. dollar traded higher against a basket of currencies, trimming last week’s losses.
- Both the Federal Reserve and the Bank of Japan are scheduled to meet next week to determine the course of monetary policy.
- Markets are currently suggesting a low likelihood of a Federal Funds Rate hike in September, about one in five, favoring instead, a December rate hike at 54%1.
Currency Movements are Difficult to Predict
Source: Bloomberg, 7/26/16-9/13/16. EUR/USD Spot Exchange Rate where the price of 1 EURO is in USD. The calculation is the one week percentage change in spot exchange rate where a negative value is the depreciation of the Euro. JPY/USD Spot Exchange Rate – price of 1 JPY in USD. The calculation is the one week percentage change in spot exchange rate where a negative value is the depreciation of the JPY. The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. A negative value indicates a general depreciation of the dollar.
1. The probability of a rate hike is calculated by Bloomberg using implied probabilities derived from the Federal Funds Futures Curve. As of 9/14/16.
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