Another Hike In Federal Reserve's Rate?

FXTM's May major assets roundup

- Jameel Ahmad

The USD pushed back at its rival the Euro in May, squeezing it down from 1.1591 in the first week to 1.1142 by the last few days of the month. The USD strength was driven largely by better sentiment over the prospects of another rate hike from the Federal Reserve.

Another noteworthy trend was seen in the oil markets, as the WTI Crude Oil price gained enough strength to move towards US$50 per barrel. There are more headline reports about a reduction in the US oil stockpiles, and this is acting on sentiment, influencing investors to turn a blind eye to OPEC, which shows no real evidence of a reduction in the supply side.

The Gold story was one of a declining trend that started mid-May as the price moved from a high of 1295 USD/oz to a low of 1230 USD/oz. The investment energy leached out of Gold and moved towards the USD-linked assets, which rivalled the metal’s shine amid speculation that the Federal Reserve is leaning towards hawkishness, and more optimism that the UK will stay in the Eurozone come the Brexit referendum.

The month of May was dominated by a sudden resurgence in optimism that the Federal Reserve is still committed to raising US interest rates more than once in 2016, which resulted in a stronger Dollar across the currency markets that also contributed to losses for USD denominated assets such as Gold. The yellow metal declined by over US$100 from its peak above US$1,300 at the beginning of May, and it is now possible that Gold could sink cleanly below US$1,200 if economic data from the United States continues to increase confidence that US interest rates could be raised again as early as June or July.

The Cable sank for most of the month, barely getting its head over the May low of 1.4631, but picking up a bit of power after the 20th, reflecting better sentiment about the UK’s Eurozone membership prospects. At the time of writing, the GBP had cleared 1.4703 and appeared to be trending upwards.