US Fed hike: Increased investor focus on property safe-haven?

US Fed hike: Increased investor focus on property safe-haven?

A rise in the Fed’s base rate is likely to strengthen the dollar, potentially causing gold prices to drop. So will property become 2017’s go to safe-haven?

Summary:

  • The US Federal Reserve is likely to raise its base rate of interest on Wednesday (March 15th)
  • It could mark the first of as many as four hikes in 2017 as the US economy continues to strengthen
  • But with a hike likely to strengthen the dollar, which in turn traditionally causes the price of gold to fall, will it further underline the strength of real estate as a safe-haven asset amid current equities volatility?

Investors around the world are bracing themselves for a rise in the base rate of interest by the US Federal Reserve.

The Bank is expected to raise interest rates on Wednesday (March 15th) for the second time since December. The Fed funds futures have forecast a 95% chance that rates will move slightly upward.

Many analysts believe it could be the first of as many as four hikes this calendar year, as a growing US economy puts sustained pressure on the Fed’s leaders to accelerate rate increases faster in 2017.

The prospect of a Fed hike has already strengthened the dollar, with the value of the greenback on Tuesday (March 14th) climbing 0.2% against six major international currencies.

“Sentiment remains firmly bullish towards the greenback with further gains expected as speculators bet on the Federal Reserve raising U.S. interest rates repeatedly this year,” said Lukman Otunuga, Research Analyst at online broker FXTM.

With global markets likely to fluctuate with the rise, it will further underline the importance of adding safe-haven assets to portfolios at a time of key political and economic events.

But gold, a popular investment in times of uncertainty, is priced in dollars, which means any strengthening of the greenback is likely to result in significant losses in value. Indeed, dollar rises last year saw the metal drop from $1,296 a troy ounce in early May to $1,135 by December.

Real estate in key international markets such as the UK is unlikely to dramatically feel the effects of a Fed rise. The preferred investment for buyers with a mid and long term mindset, property performance is underpinned by supply and demand fundamentals, and in Britain prices and yields are forecast to continue rising over the next few years due to one of the biggest housing shortages for a generation.

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