Written by Fed minutes could give clues about Fed rate path
The dollar rebounded on Tuesday, but today it is pulling back against most of its major counterparts as the spotlight has turned to the minutes of the latest FOMC decision.
There was no key US data on yesterday’s agenda to justify the dollar’s recovery, but San Francisco Fed President Mary Daly reiterated the view that a pause in interest rate reductions is warranted until more visible progress in bringing down inflation is observed.
It seems that Daly has joined forces with Philadelphia Fed President Harker and Governor Bowman who on Monday noted that keeping interest rates untouched is the appropriate strategy for now, leaving Governor Waller alone in the slightly more dovish camp.
This may have raised speculation that following the latest NFP and CPI data, the Committee has leaned more hawkish, allowing investors to take off the table some more basis points worth of rate cuts for this year. Currently, market participants are seeing interest rates ending the year 36bps below current levels.
With that in mind, the minutes today may be scrutinized for clues and hints as to how willing policymakers were at the latest meeting to adjust their policy should upside risks to inflation intensify. A hawkish report could increase speculation that the Fed may revise its dot plot even higher at the March gathering, allowing the US dollar to gain a bit more.
RBNZ ready to shift to lower gear
During today’s Asian session, the RBNZ decided to cut interest rates by 50bps as was widely anticipated, but corroborated investors’ view about a slower rate cut pace moving forward and that a pause may be closer than previously anticipated.
The kiwi is well in the green today, but it is too early to argue about a long-lasting trend reversal. The latest GDP release revealed that New Zealand has fallen in a deep recession and thus, should upcoming data suggest no material improvement, the Bank may need to turn dovish again.
The yen is also on the rise today, following fresh commentary about the prospect of more BoJ rate hikes. Board member Takata reinforced the hawkish rhetoric today, saying that they must raise rates to avoid inflationary risks. The probability of another 25bps increase being delivered in July has risen to 85% from 80%
UK inflation accelerates, but BoE bets unfazed
Flying to the UK, following the larger-than-expected acceleration in wage growth for December, inflation sped up to a 10-month high of 3.0% in January, overshooting the BoE’s own forecast of 2.8%.
The central bank expects inflation to peak at 3.7% later this year, but Governor Bailey has repeatedly highlighted that this will only be temporary, and that inflation will resume its downward trajectory thereafter. That may be why the pound strengthened after the data came out, but it was quick to give back the gains as investors have not altered their bets about the BoE’s future course of action.
Wall Street and gold climb north
On Wall Street, after wobbling between red and green, all three of the major indices managed to close slightly in the green, with the S&P 500 hitting a fresh record high. Stock futures are also slightly in the green even after Trump said that he is planning to impose tariffs of around 25% on auto imports, semiconductors and pharmaceuticals as early as April 2.
Perhaps investors believe that the US President is using tariffs as a leverage to achieve better deals with the US’s main trading partners and that there is time for reaching common ground. That said, although the prevailing uptrends on Wall Street remain intact, hawkish Fed minutes today could be a reason for a pullback.
Gold also drifted north, inching closer to its own record high. However, the minutes pose correction risks for the yellow metal as well.
by XM.com
