How Will FOMC Minutes Affect USD?

5 April, 2017

How Will FOMC Minutes Affect USD?

The dollar index hit a 3-week high of 100.59 yesterday. However, it pulled back after testing the near-term major resistance at 100.50. It currently holds above the support level at 100.30. The crucial US ISM figure will be released this afternoon at 15:00 BST; the non-manufacturing PMI (Mar). This data release will affect USD and USD crosses. US ISM non-manufacturing PMI readings have kept above 50 since February 2010, showing the service sector remains sound.

US ISM manufacturing PMI released on Monday has seen an uptrend since September 2016. The latest figure for March, released on Tuesday, was 57.2 which saw the 94th straight month above 50 indicating the manufacturing sector is still expanding. However, the figure was lower than the previous figure of 57.7. It saw a slowdown for the first time since September 2016 caused by a rise of production costs.

Although rising prices weigh on the manufacturing sector it has pushed inflation up to the Fed’s 2% target. The PCE (YoY) inflation figure for February rose to 2.1% which was the first time above 2% for the past five years.

The UK Markit services PMI (March) will be released at 09:30 BST today. This figure has seen an uptrend since August 2016, however, it has declined since January 2017. GBP/USD has retraced in the past two days; the current price holding above the near-term major support line at 1.2400. The service sector accounts for over 80% of the UK economy, the UK service PMI released today will likely affect GBP and GBP crosses.

This afternoon we will see a series of important US data released – be aware that it will likely cause volatility for USD and USD crosses. ADP employment change (March) at 13:15 BST, which is regarded as a prediction of the non-farm payrolls (March) released this Friday. The Markit services and composite PMIs (Mar) at 14:45 BST. Most importantly we see the release of ISM non-manufacturing PMI (Mar) at 15:00 BST. Crude oil inventory (the week ending Mar 31) is also released at 15:30 BST – always a major influencer in Oil price volatility.

The FOMC minutes will be released this evening at 19:00 BST. The Fed raised rates in the March 15 meeting. Recently several Fed officials have commented on prospective rate hikes, mostly in an optimistic tone, with the likelihood of two more rate hikes by the end of the year. We will likely get more clues about the probability of a rate hike in upcoming FOMC meetings and from the resulting minutes. Per the CME’s FedWatch tool the probability of a rate hike in June is around 59%.

The first Trump-Xi meeting is scheduled for Thursday April 6; be aware that this political event will likely outweigh the economic data performance.

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