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  
BOJ Monetary Policy Remains Steady

The Bank of Japan maintained their monetary policy on Friday whilst upgrading their assessment of private consumption...

Final Confirmation for a June Rate Hike

The crucial US labour market data for May will be released today, June 2nd at 13:30 BST. It includes non-farm payrolls...

GBP Under Pressure

The Brexit negotiation process is one of the focuses of the upcoming UK election. Although the Conservative Party has pledged a smooth and orderly...


Oil Slumped Post OPEC Extension

On Thursday, OPEC announced that the existing output cut agreement will be extended for an additional 9 months...

USD Bounces From Month Low

Trump administration has presented its 2018 budget plan to Congress last evening. The budget plan calls to slash $3.6 trillion...

Dollar index hit a new low

The dollar index hit a new post presidential election low of 96.95 on Friday May 19th. EUR/USD hit a high of 1.1211...


USD Hit Post Election Low

To date the dollar index has almost given up all of the post presidential election rally...

BoE Expected to Keep Rates Steady

ECB Governor Draghi will make a speech in the Dutch Parliament at 12:00 BST today. It will be Draghi first speech...

Trump's Tax Reform Plan

US Treasury Secretary Mnuchin announced Trump’s tax reform plan in a press conference...

  


Share: