FOMC Minutes Knock Dollar, but not by Much

Our prop desk remains in a relatively subdued mood with those short S&P positions as well as long USD/CHF trades still in play. We’ve seen some short interest in the Aussie dollar emerge in the last few hours, whilst a long GBP/JPY position has been closed out at a meaningful profit.

Daily Round up

Big picture macroeconomic and political issues remain very much front of mind. Donald Trump is wading into the Syrian conflict in a move that has the potential to force his relationship with Vladimir Putin, whilst meetings with the Chinese Premier also loom large. Yesterday’s FOMC meeting minutes managed to serve up a double whammy of simultaneously knocking some dollar crosses and equity markets and the same time, whilst today the ECB will be busy with a raft of policymakers speaking at assorted events as well as the release of their latest meeting minutes being scheduled. The run into the weekend has the potential to be highly volatile and calling direction is going to be a challenge.

Fundamental Analysis – FOMC Minutes Knock Dollar, but not by Much

Yesterday’s release of the March FOMC meeting minutes may have presented a little weakness for the dollar, but overall this seems to have been short lived. There was a cautionary note included to point out how the latest rate hike wasn’t indicative of any upgrade to the longer-term policy outlook, but the only major cross to show a meaningful response here has been USD/JPY, retreating back towards fresh lows for the year.

The Aussie dollar has been under renewed pressure in recent trade with more jawboning from the RBA helping suppress the value of the currency. Deputy Governor Debelle has been highlighting how a number of changes are set to drive currency flows out of the country, including a dividend exodus from the commodity stocks, whilst changes in bank funding are going to drive up US dollar inflows. The result has been to drive AUD/USD lower once again, although tomorrow’s US non farm payrolls could prove to be the catalyst for something of a reversion if this print should come in short of expectations.

The Euro found no upside from yesterday’s reported dollar weakness but that could change with a slew of ECB-backed comments during the day ahead. The highlight will by all accounts be the release of the latest meeting minutes, which could hold further clues over the timing of any rate hike and with EUR/USD currently wallowing around three-week lows, there’s certainly the potential for some upside to be found here if hawkish tones emerge.

Yesterday’s ADP payroll survey came in above expectations and served up a slug of enthusiasm for equity markets, but this didn’t last long, with the detail in the FOMC meeting minutes disclosing that the Fed wanted to start withdrawing QE later in the year taking a big toll. The punch bowl that many see to have fuelled the equity market rally through an abundance of cheap money is being taken away, although it’s worth noting that losses for the likes of the S&P have been measured. Yesterday evening’s 25 point sell off came to an abrupt end - the Fed is clearly mindful of making any withdrawal in a hugely measured way.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.