US interest rates 'may top 5.25%'
US interest rates are set to move to 5.25%, and the possibility of even higher rates will likely keep the euro/dollar rate at $1.25, according to the June Bank of Ireland Global Markets Economic Research Bulletin.
Bank of Ireland chief economist Dan McLaughlin said: "The market believes that another quarter point increase in US rates in late June is inevitable, taking short rates to 5.25%, and is giving a high probability of a 5.5% Fed Funds rate at the August meeting.
"Indeed, a number of the major US investment banks are now predicting 6% short rates in the US, a significant change in sentiments relative to a few months ago.
"Expectations about euro rates have not greatly changed over the same time period, and it is this dichotomy which has precipitated the recent rally in the dollar.
"Evidence is pointing to a softening of US growth, albeit not at dramatic levels, with a slowing housing market contributing to a weaker tone in consumer spending. This would argue against further monetary tightening, but the Federal Reserve has publicly expressed concern about inflation.
"We also see rates moving to 5.25%, and the chance of even higher rates may well keep the Euro/Dollar rate at around $1.25."
