Lanova Investments

Welcoming 2015 with US Hike in Interest Rate: Anticipating the Fate of Currency and Equities of Major Companies as the Monetary Cycle Shifts

Truly, the butterfly-like effect on the US economy as its interest rate rises after leaving its QE program will surely affect other economies and currencies aside from the Eurozone and Japan as the year progresses.


Naxxar, Malta -- (SBWIRE) -- 01/12/2015 -- The anticipated outburst of interest rates in 2015 seems to be a promising year for the United States and for the coming years. The strong shift in the monetary cycle would likely unleash more uproar in currencies and equities that increasing deviations in between the US, the Eurozone and Japan is likely to be expected.

Seeing the US economy enjoying its good health and continued growth as it enters 2015, will be further enhanced by the recent fall in oil prices that had affected the Russian economy and the strong dominance of greenbacks that had cut off other competing currencies – particularly Euro and Yen. With the sudden upturn of events in the world market, the US can confidently shrug off poor economic outlook and deliberately lowers unemployment levels since most of its demands can be generated domestically rather than relying on the exported products and services in the previous years; enabling US consumers to bag more money into their pockets.

The rise in the US interest rate will surely let loose further volatility due to Forex traders that will grab the opportunity to sell off USD to take profits. Though the Forex market has foreseen this event, they make their selves prepared for the changes that USD showed previously when it soared. In aims to lessen the damages that the US interest rate might inflict, the Forex manager in the international market will be forced to hold back their currencies and equities in fear of losing a share of export markets to various companies affected by the rise. Apparently, this would make the greenbacks a currency of choice for its strong economic fundamentals.

Though the UK is expected to beat US for being the first of the major companies to increase interest rate due to the progression in job creation, the growth will certainly undergo a gradual yet healthy pace. One of the reasons that many experts were eyeing for being the political uncertainty that UK faces as the election dawns, which will surely affect the GBP. The country's fragmenting political landscape with the rise of the Scottish National Party that aims to get independence from the UK and the UK Independence Party that wants United Kingdom to leave as part of Europe, without a doubt, would probably complicate things for GBP and may lead to a dangling parliament.

Another contributory factor that will weigh GBP and will remove any urgency to increase the interest rate is the lack of growth in the Eurozone. Insufficiency of exports prospect in the Channel had affected and kept the current UK account deficit to be at high levels. Moreover, the migration happening in the Eurozone also had kept a downward pressure on UK wages. Though there's a strong job growth, it only gave a modest gain to the UK.

Conversely, the European Central Bank will begin its quantitative easing programme in Q1 to increase inflation and expectations. Yet, ECB President Mario Draghi has been up opposed to 'deep division within the central bank and strong German reticence, which may lead to legal action'. And since the EUR is in the weaker position, the ECB will continuously support the common currency which would probably obliged other European central banks to keep pace with EUR's decline.

As the Eurozone heads to stagnation and deflation that will make debts in real value higher and increasing the strains in the borrowers; the ECB will still favor the move to QE because of lower energy prices that will help the Eurozone economy in aims to counteract the exports fails sanctioned against Russia and the Chinese' slowing economy. And once this tandem – lower energy prices and QE – works out, who knows that the Eurozone could make a comeback during H2.

With the Eurozone in full faith with the QE, this has likely made Japan in an increasingly desperate move. Japan's rapid ageing population has been seen to be the main cause why it can't grow sustainable with 250% debt to GDP due to lack of reforms. And increasing taxes to improve the fiscal position would only finance the government's expenditure, especially if the economy keeps on tumbling back into downturn.

Truly, the butterfly-like effect on the US economy as its interest rate rises after leaving its QE program will surely affect other economies and currencies aside from the Eurozone and Japan as the year progresses. And with these changes, people will certainly look for ways to survive from the economic turmoil it will generate.

About Lanova Investments
Lanova Investments' investment philosophy emphasizes the importance of compounding long term capital growth associated with equity investing while maintaining flexibility to shift asset allocations away from equities when our outlook for that asset class is highly negative. Depending upon the clients' individual needs, they actively manage the allocation of assets between stocks, bonds, and cash based on their risk and return expectations for each asset class. Their Investment Policy Committee uses several proprietary models in conjunction with years of industry experience to determine the optimal allocation.