Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar Slips On Fed Minutes

Published 12/10/2017, 08:20 am
Updated 09/07/2023, 08:31 pm

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

The September Federal Reserve minutes failed to impress and while USD/JPY held onto its gains, the greenback fell sharply against all other major currencies.
This weakness drove EUR/USD above 1.1850 and helped the pair end the NY session at its highs of the day. It also took GBP/USD back above 1.32 and USD/CAD well below 1.25. Now lets be clear, the Fed minutes were not dovish. According to the report, “many Fed officials saw another rate hike this year” as they don’t see the storms knocking the economy off track. They also saw wages rising, which should help to boost future inflation. The only problem was that “many Fed officials were concerned that the low inflation is not transitory,” and a few even wanted hikes delayed until inflation ticks higher. Although Fed fund futures did not budge one iota after the Fed minutes, this specific line was enough to cast doubt among currency and treasury traders. In a week when North Korean tensions prevented the dollar from rallying, the lack of unambiguously hawkish FOMC minutes was just the excuse that FX traders needed to send the dollar lower. The situation with North Korea is likely to worsen in the coming days/weeks with NK’s foreign minister saying Donald Trump “has lit the wick of a war” and “we need to settle the final score, only with a hale of fire, not words.” We expect to see another 24 to 36 hours of dollar weakness before consolidation ahead of Friday’s inflation and retail sales reports. Producer prices and the weekly jobless claims are scheduled for release Thursday but these numbers don’t tend to have a significant impact on the currency. Retail sales and CPI, on the other hand, are expected to rise, which should stem the dollar’s slide toward the end of the week.

Wednesday's best-performing currency was the euro, which completely shrugged off Catalonia’s political troubles.
Investors appear to like Spanish Prime Minister Rajoy’s firm response to the region’s strive for independence. Rajoy gave the Catalan government 8 days to drop its independence bid or he will rescind its political autonomy and rule the region directly. There was a lot of confusion Tuesday when the Catalan president signed an independence declaration but then suspended the effects of the declaration for a few weeks while they engaged in dialogue with the Spanish government. The Spanish government on the other hand doesn’t seem to have any interest in talking as they view the referendum as illegal and a violation of the constitution. If Rajoy terminates the government and seizes control of Catalonia, it would cause quite a bit of internal strife but the markets may view his unwavering refusal to allow Spain to break up as positive for the euro. With the European Central Bank gearing up to reduce stimulus at the end of the month, there’s scope for further gains in the euro. The most important event risk for the euro on Thursday will be ECB President Draghi’s speech. As he will be taking part in a monetary policy panel, it may be difficult for him to avoid talking about ECB policy.

Sterling extended its gains against the greenback for the third day in a row.
There were no U.K. economic reports released but between the decline in U.S. yields and the rise in U.K. yields, GBP/USD spent most of the day in positive territory. Over the past 3 weeks, GBP/USD has fallen aggressively because of political uncertainty but throughout this time, rate-hike expectations never changed. The market is still pricing in a 75% chance of a hike in November and an 80% chance of a hike before the end of the year. Investors have quickly forgotten about the Bank of England’s hawkishness but as data improves, they will be reminded of the central bank’s intentions. We expect GBP/USD to test its August high near 1.3270 but it could possibly extend its gains up to the 20-day SMA near 1.3350.

All 3 of the commodity currencies traded higher against the greenback on Wednesday with the Canadian dollar leading the gains.
No Canadian economic reports were released but after trading heavy for most of the week, the FOMC minutes was just what USD/CAD traders had been waiting for to take the currency pair lower. Now that it has closed below the first standard deviation Bollinger® Band, the next stop should be the 20-day SMA near 1.2390. Thirsday's main focus for Canada will be Bank of Canada Deputy Governor Wilkins’ speech. The Australian and New Zealand dollars ticked upward but AUD/USD failed to recapture 78 cents despite stronger consumer confidence. The New Zealand dollar on the other hand appears to be in the process of a forming a bottom above 70 cents.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.