Forex Trading Strategies Blog

The new US Fed chief notched up interest rates in the US further by 25 basis points taking them to 4.75%. He did this to keep inflation under leash and has hinted that rate increases are likely to continue. This hike is in continuance with his predecessor’s interest rate policy and is the 15^th successive increase in interest rates. Allan Greenspan began hiking rates from their 1% level in mid 2004.

The British pound lost ground to the US dollar on this news as also the announcement of an increase in the UK’s current account deficit. The US interest rates, now at 4.5%, are higher than the UK's. With further likely increases in US interest rates in the future, experts feel that the US dollar is all set to overtake the British pound in the coming years.With this hike the gap between the US and Australian interest rates also narrowed and the US dollar rose against the Australian dollar as well. The Australian Dollar slipped to a three year low of US 70.2 cents.

While the US economy has shown no signs of slowing down, the successive interest rate hikes have dampened the US realty market. Experts have termed the sustained boom in this market as a bubble waiting to burst. Hardened property prices had led to a lot of borrowing against homes. These borrowings have sustained consumer spending and the economic boom in the US.

The US Fed will have to be cautious, while planning further hikes as any further increase in interest rates can prick the property bubble and destabilize the US economy.

To read further on the Fed’s latest hike, click here.