The dollar rebounded alongside the probability for a March hike, after the above-consensus ISM manufacturing PMI and the release of the FOMC minutes. Focus for USD-traders now shifts to the ADP report in order to gauge where the NFP print may come in on Friday.
The dollar traded higher yesterday against most of its major rivals. It remained lower only against NOK, AUD and NZD, while it was virtually unchanged against SEK. The US currency traded on the front foot after the ISM manufacturing PMI for December rose to 59.7 from 58.2 previously, confounding expectations of a tick down to 58.1. A few hours later, the supportive Fed minutes fueled further the dollar rebound.
The Fed minutes showed that most members continue to support gradual rate hikes. A few participants supported that the pace of additional rate increases through 2018 should be faster than the median “dot plot” suggests, while others expressed concerns that such a path might prove inconsistent with a sustained return of inflation to 2%. A majority continues to expect inflation to gradually return to the target as the latest softness can be attributed to transitory effects, while others believe that other persistent factors may be holding it down. As for the US tax cuts, participants saw the outlook for economic activity and the labor market as having remained strong or having strengthened, in part reflecting a modest boost from the expected passage of the legislation, while a few members noted that this could potentially increase labor supply. Policymakers also noted that accelerating inflation in cased output expands well beyond its maximum sustainable level, perhaps due to fiscal stimulus, may warrant faster rate increases.
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