Dollar reversal on Fed expectations

20 August, 2015

The release of FOMC minutes to the end of July meeting brought more uncertainty with regards to the timing of the next increase in rates. This can be seen in the reaction of the dollar, down 0.4% on the back of the release. The minutes themselves were expressing caution with regards to the inflation outlook, but were naturally more bullish on the labour market. Herein lies the dilemma for the Fed, whether to look at inflation and expectations thereof, or the labour market. Both form the legs of their dual mandate to achieve maximum employment and stable prices (together with moderate long-term interest rates). In terms of market pricing for a move, we are back to where we were around 3 weeks ago, with short-term interest rate markets suggesting that on balance rats are likely to remain on hold.

This complicates the outlook for FX, with bigger picture strategies playing on policy divergence once again struggling. The Aussie finds itself weaker overnight on the continued fragility seen in China. For the most part, Australia has shown a certain degree of resilience to developments in China, but the link has not been fully broken by any means. Elsewhere, emerging markets continue to be under pressure. Earlier this week it was the South African rand under pressure, with the Turkish Lira taking it on the chin, having weakened against the dollar for the past 5 sessions and touching the 3.00 level on USDTRY. Looking at a broad basket of emerging market currencies, they have now unwound the rally seen in the wake of the Fed minutes last night and are now lower that levels prevailing before the release. This reflects the fact that it’s not just about the Fed, there are plenty of country specific factors weighing. Focus today is on the UK retail sales today, together with US weekly claims and existing home sales data.


Source link  
The precious metal has broken out

The precious metal has broken out from its descending wedge around 1331.00 and moved higher to create a lower high at 1361.80.The price then...

All Focus on US inflation data

The USD has weakened further overnight as the market awaits important US Data at 13:30 GMT. USDJPY broke down under 107.000, while...

Central Bank speakers start a quiet week

UK MPC Member Vlieghe spoke at the Resolution Foundation in London. Some of the comments made were: If there is less credit headwind to the UK economy...


Equities Face a Nervous Session

The global equity markets are bracing themselves for a stormy closing session this week, as data from Thomson Reuters Lipper unit shows US fund...

Super Thursday for the Bank of England

The Bank of England is expected to largely proceed as normal today on ‘Super Thursday’ when the central bank releases its policy decision and statement...

US Nonfarm Payrolls Today

Today is Non-farm Payrolls day in the US. This data release is generally one of the most important of the month, being a leading indicator of consumer...


Australian Dollar drops after soft data

The Australian dollar eased on Thursday following weaker-than-expected economic data. The Australian Dollar took an initial knock on Wednesday on...

Trump Supports a Strong Dollar

Markets have had a volatile session this week thanks to various US officials and yesterday was no exception, with President Trump speaking in Davos...

A Weaker Dollar is Good for the US

Yesterday, Senior US Officials took the lead from their President and made clear the US position on Trade. Commerce Secretary Wilbur Ross...

  


Share: