US Dollar Index

FOMC Meeting Minutes Weigh on the Dollar with Draghi and the EUR in Focus

Earlier in the Day:

Economic data through the Asian session was limited to Australia’s new home loan figures for August, which was Aussie Dollar positive, a 1% rise in new loans coming in ahead of a forecasted 0.5% increase.

The Aussie Dollar showed little response to the figures, with the key driver through the Asian session being the FOMC meeting minutes released late into the U.S session.

A divided FOMC camp weighed heavily on the Dollar, members seemingly divided into those looking for a December rate hike over concerns of a possible overheating, those looking for positive economic indicators between now and the December FOMC before making a decision and the doves, adamant for the need of a pickup in inflation towards the FED’s 2% target before willing to make a move.

On the balance, while the Dollar remained under pressure through the Asian session, economic data out of the U.S of late has been particularly upbeat and should indicators continue to support a strong end to the year, the Committee will likely be divided into the two camps by year-end, though the effects of Hurricanes Harvey and Irma may come into play in the coming weeks.

Hopes of the central banks for a stronger U.S Dollar will have been dashed for now, with the Aussie Dollar rising 0.36% to $0.7816 at the time of writing and the Kiwi Dollar up 0.47% at $0.7114, the gains in the Kiwi Dollar coming despite the markets waiting on NZ First Party leader Peters’ announcement on with which Party NZ First will be looking to form a coalition. It’s the fifth and final day of talks and an announcement is expected by the end of the week, a National – NZ First coalition likely to see the Kiwi Dollar bounce back to $0.72 levels, with focus likely to then revert back to the outlook on monetary policy, the RBNZ having recently turned dovish.

The gains in the Yen were more muted however, with the Yen up 0.20% to ¥112.28 against the Dollar, appetite for Asian equities on the rise through the session on the back of the more dovish than expected minutes from the FOMC.

The Day Ahead:

The economic calendar is on the quieter side through the European session today, with stats out of the Eurozone limited to finalized September inflation figures out of France and the Eurozone’s August industrial production figures.

Following Germany’s production figures released on Monday, which surged 2.6% in August, expectations are for the Eurozone numbers to be EUR positive, though the markets will also have ECB President Draghi to consider this afternoon. The bounce in the EUR in the wake of the dovish FOMC meeting minutes has seen the EUR reach $1.18 levels, with more gains likely to be on the cards as economic data out of the Eurozone continues to impress.
ECB concern over EUR strength could see Draghi talk down the EUR, but having refrained from doing so in recent speeches, there may be little in the way of the EUR rally ahead of tomorrow’s inflation and retail sales figures out of the U.S.

For the Pound, stats were limited to this morning’s RICS House Price Balance numbers for August, which reported a pickup in house prices, though the markets showed little response to the figures, with the Pound having found its feet through the first half of the week on hopes that the British Prime Minister has managed to avert a Tory party rebellion over Brexit.

While there are no material stats scheduled for release, BoE Monetary Policy Committee member Haldane is scheduled to speak this afternoon. Following the release of trade and industrial and manufacturing production figures earlier in the week, sentiment towards BoE monetary policy remains mixed, leaving the door ajar for Haldane to influence market sentiment towards a possible rate hike before the end of the year.

A pickup in the Pound will ease some inflationary pressures, though unlikely to be enough to pull inflation back to below the BoE’s 2% target any time soon.

Across the Pond, stats are limited to the weekly jobless claims figures and September’s producer price index numbers, with the markets also needing to consider FOMC voting members Brainard and Powell, who are scheduled to speak this afternoon, though there will need to be some particularly hawkish commentary for the markets to respond.

The Pound was up 0.26% at $1.3258 at the time of writing, with the EUR up $0.12% at $0.1878, while the Dollar Spot index was down 0.18% at 92.852.