Fed Minutes Disappoint Dollar Bulls

Once again we got a fairly steady night from the currencies yesterday with a gradual appreciation in the dollar across the board through the first couple of sessions before we got to the Fed minutes. They didn’t come out as much on the Hawkish side as the market had expected and this resulted in a general dollar sell off for the rest of the day.

The Fed commented that ‘it will soon be appropriate to raise rates’ and ‘details of balance sheet reduction should be announced soon’ did not inspire the confidence that the dollar bulls were looking for and we consequently saw a bit of a retracement of the last couple of days moves. However, things are not looking that bad for the optimists out there as Senate Majority leader McConnell commenting that prospects are pretty good for comprehensive tax reform bill – and it was concerns for the tax reform that led to this most recent dollar sell off. We note that even though we’ve seen some dollar selling in the currencies after the minutes, the STIR market is still pricing a June rate hike at 80%.

Elsewhere in the market the Bank of Canada kept rates on hold as expected, however we did see Cad appreciation across the session (UsdCad down over a big fig on the day) as comments that the adjustment to the Oil shock are now complete added strength to the currency.

Looking ahead to today’s trading and we should see relatively steady trading conditions again with little in the way of fundamental data out and some bank holidays occurring across Europe. We do have the 2nd estimate GDP data out of the UK today and the weekly unemployment numbers in the US but that’s about it, so I think we’re still looking to the US and the news wires to be the main drivers of the market in the sessions ahead and into the weekend.

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