Lee Hardman, Currency Analyst at MUFG, suggest that the release of the latest FOMC minutes from their meeting in September has provided some reassurance to the market that the pace of tightening will be more gradual although offered little fresh policy insight.
“Commodity related and emerging market currencies have continued to rebound in the Asian trading session supported by the ongoing improvement in investor risk sentiment. The ongoing improvement in global investor risk sentiment continues to be mainly driven by dampened expectations for Fed monetary tightening rather than any material brightening in the outlook for global growth.”
“The minutes revealed that the committee decided it was prudent to wait for additional information confirming the economic outlook had not deteriorated before tightening monetary policy. The subsequent release of the disappointing non-farm payrolls report for September has since heightened concerns that the US economy is slowing.”
“There was no clear signal in the minutes that the Fed was close to raising rates in September as suggested since by some FOMC members.”
“After the disappointing payrolls report the likelihood of the first rate hike being delivered this year has diminished although it can’t yet be fully ruled out. US financial conditions are now easing materially as the US dollar softens and US equities rebound which will help to ease concerns over the outlook for the US economy which if continued in the coming months could make the Fed more willing to begin raising rates than in September.”