Fed Meeting Minutes Stops Dollar Rally in its Tracks

The Fed’s meeting minutes released last night dominated currency moves in the previous session. All Dollar strength gained from the retail sales beat the day prior was given back, and some, after the minutes painted a picture of confusion, and wide ranging views on the lack on inflation in the US economy. Rate expectations for a December hike fell from around 50/50 to around 40% currently. The Fed’s conundrum is based on the fact that despite recent rate hikes, overall financial conditions are still loosening, buoying stock markets and fueling growth. If we continue to see solid GDP figures and inflation holds steady, albeit at low levels, a December rate hike is still very much a possibility. On the other hand if they decide to reduce their balance sheet over this time, this will have the same effect on the economy, depending on size and frequency of bond sales.

Not helping the greenback was more negativity out of the White House. Trump decided to disband his business council made up of prominent CEOs, which was formed to help his agenda of lowering barriers for doing business, along with corporate tax cuts, to fuel growth. Another step in the wrong direction.

UK unemployment fell to 4.4% – its lowest levels since 1975 – however reaction in the Pound was muted due to relatively flat wage growth. The Aussie, Kiwi, and Cad all had strong moves overnight, off the back of US weakness, a strong run in commodity prices, and NAFTA talks getting underway on a better than expected footing, all helping the export lead economies. The Cad had a strong move as oil inventories came in at -8.9M well below -3M forecast, however oil prices continue to drop on increased US output.

During the Asian session this morning we have Aussie employment data at 11.30, which is expected to come in flat at 5.6% after a slight increase last read from 5.5%. Following that we have the RBA assistant governor Ellis speaking this evening. Into the European session, we have UK retail sales followed by Euro CPI. We also have a raft of US data out overnight, headlined by unemployment claims which are expected to come in at 240k.

After a period of Dollar strength, it seems as though the hopes of inflation are waning post the Fed meeting minutes. Traders will be looking to tonight’s data for confirmation of this dollar weakness, and looking for levels to sell if no bright sparks appear.

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