U.S. Fed delivered

The Federal Open Market Committee (FOMC) continued its rate hike campaign throughout 2005. As of its June 30 meeting, the FOMC had nudged short-term rates higher at the last nine consecutive meetings, bringing the overnight Fed Funds rate to 3.25 percent, while the discount rate stands at 4.25 percent. Statements from U.S. Fed officials have suggested that no pause will likely be seen in the rate hike outlook, with most forecasters targeting a 4.0-percent Fed Funds rate by year-end.

The FOMC will meet on Aug. 9 and Sept. 20. While market players were not surprised by the rate hikes, some analysts suggested the market had underestimated the overall bullish impact on the dollar, from an interest rate differential standpoint. Bullish interest rate differentials should continue to underpin the U.S. in the second half, most analysts say.