Home Forex Market News Fed minutes cause dollar to drop as market pushes back expected rate...

Fed minutes cause dollar to drop as market pushes back expected rate hikes

The US dollar dropped versus other major currencies following Federal Reserve minutes that were interpreted as dovish.  Fed board members seemed to fret about the weakening global economic environment and the impact it would have on US growth prospects.  Fed governors were also cautious on the negative effect the stronger US dollar would have on exports and on inflation.  These considerations seemed to play a key role in the committee’s decision to keep the phrase that rates would stay low for a “considerable period” following the end of tapering.

As a result of the Fed minutes, US stock indices recorded their biggest daily gain of the year.  In foreign exchange markets, the euro crossed above the 1.27 level where it previously met resistance and climbed to as high as 1.2758 versus the dollar; its highest in nearly 2 weeks.  The yen also gained as dollar / yen dropped to 107.80 as even the safe haven yen gained versus the greenback despite the outsized gains in risk assets.  The pound also gained and was trading around 1.6170 after attempting but failing to cross the 1.62 level.

The Australian dollar was also stronger versus its US counterpart, climbing to 0.8867 in Asia after a strong US session also, as the market ignored the weaker-than-expected payrolls number.  Australian payrolls dropped by 29.7 thousand while analysts were expecting an increase of 15.5 thousand.  Unemployment was in line with expectations but climbed to the relatively high for Australia level of 6.1%.  Nevertheless, given the statistical revisions and the problems this data series presented, traders were cautious to give too much emphasis on the payroll numbers.

The remainder of the day will be filled with central bank events and speakers.  The Bank of England will announce its monetary policy decision although no change is expected.  Mario Draghi will also be speaking in Washington, while a whole host of Fed speakers will also speak – some on the economy and others on more specialized issues.  The focus will of course be on the US dollar and how far its correction will go.  The dollar will probably need some additional positive news before resuming its uptrend.

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