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From just 12 percent in July, the probability of a rate hike from the U.S. Federal Reserve has risen to 60 percent. Several hawkish speeches by FOMC members at Jackson Hole Symposium in August pushed the probability higher in addition to better than expected economic releases from the United Kingdom.
So far the data released from the UK have been indicating better than expected weathering of the referendum by the United Kingdom and an immediate recession there seems unlikely. The saturation in China, which has also been a major concern at the beginning of the year, has somewhat settled and no immediate crash is expected. U.S. labor market, which has shown some weakness in April and May, has proved the weakness to be only temporary. In the second quarter of this year, unit labor costs have jumped by 4.3 percent.
After the speeches in Jackson Hole, the market is becoming alive to the idea of a rate hike as early as this month and if today’s NFP report turns out to be a blockbuster, the probability is likely to hit 75 percent, which should provide some interim support to the dollar. The market has started pricing a second hike too, for which the probability now stands at 15 percent.
