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WEEKLY REVIEW: Guessing game around the interest rate hike by the Fed goes on
14.08.2015, 16:05

WEEKLY REVIEW: Guessing game around the interest rate hike by the Fed goes on

The first interest rate hike was more in focus this week. Market participants still speculate on that the Fed starts raising its interest rate in September. But the Fed's decision seems to be more uncertain. Reasons are the U.S. economic data and this week's yuan devaluation. China's central bank reassured market participants on Thursday, saying there was no basis for further yuan devaluation.

The devaluation of the yuan could mean that China's economy faces more problems than expected by market participants. China's exports dropped in July. The government tries to boost the activity in the manufacturing sector and exports. But the yuan devaluation could lead to a currency war in Asia.

It is likely that China will wait for a while to see the consequences of its yuan devaluation. If there are no significant changes, the further devaluation is possible.

The U.S. economic data was mixed. There is some improvement in the U.S. economy, but there are no significant changes. Inflation and wages remain low. Inflation slightly improved in July, but there could be another picture in August as oil prices continue to decline. The recent drop in oil prices is not reflected in July's data.

The Fed could conduct an experiment and raise its interest rate in September. But it seems unlikely as the U.S. exports are already hurt by a strong U.S. dollar.

The deal on the third bailout programme is practically certain. The Greek parliament approved the draft deal on the third bailout programme on Friday. Out of 300 Greek MPs 222 voted for the deal, 64 voted against the deal, 11 abstained and three were absent. Out of 149 Syriza MPs 43 voted against the deal.

News reported that the Greek Prime Minister Alexis Tsipras will ask for a confidence vote before parliament in the next week. New parliament election could mean that the Greek drama starts again.

Markets are expected to be volatile next week as investors remained focussed on the U.S. economic data and due to lower liquidity on markets. It is likely that the currency pair EURUSD will test the level of $1.1200, maybe even the level of $1.1300, if the U.S. economic data will be negative. If the U.S. economic is better than expected, the currency pair EURUSD may test the level of $1.1000.

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