U.S. dollar falls as FOMC minutes indicate a more dovish tone than expected, euro rallies versus its main peers

Oct 12 • Morning Roll Call • 30 Views • No Comments

The minutes from the FOMC meeting, which concluded on September 20th, were released on Wednesday evening and despite the overwhelming consensus appearing to be in support of a another interest rate rise before the year ends, several FOMC members indicated caution; suggesting that they’d be monitoring inflation (staying near its 2% target) and other critical performance indicators carefully over the coming month or so, before giving the green light to another raise. Perhaps occurring at the December meeting, which would represent the third rise in 2017 and comply with the commitment for three raises made by the Fed chair Janet Yellen in Q1 2017. As a result of the dovish tone, USA equities once again rallied to new record highs, earlier in the day Japanese NIKKEI 225 had reached a 21 year high, whilst the MSCI emerging index had set a six year high.

The U.S. dollar, which had fallen versus the majority of its main peers throughout the European session, continued to fall after the FOMC minutes were published, although the falls were moderate. Only versus the euro did the USD fall by any significant amount. In terms of economic news, job openings in the USA (JOLTS) missed the forecast marginally, whilst weekly mortgage applications fell by -2.1%.

European economic news was overshadowed by the political issues regarding Spain and the Catalonia area. Prime minister Rajoy appeared to suggest that he refused to accept the independence result the Catalonian president claimed yesterday, even going so far as to suggest that Madrid’s central government could rescind the area’s current level of independence, unless a solution (that favors Spain overall as a country) is reached. As a consequence of the hard stance Spain’s main index the IBEX rallied closing up 1.34%, with other European indices also enjoying mostly positive gains, with the exception of France’s CAC and the UK’s FTSE 100, which closed marginally down.

U.S.DOLLAR

The U.S. Dollar slipped versus several peers late on in the New York session, however, the dollar had been under pressure in the earlier European session and only fell further marginally as the FOMC minutes were unveiled. The dollar index fell by circa 0.3% on the day. USD/CHF fell by circa 0.2% on the day, ending at approx. 0.9733. USD/JPY rose marginally, closing out resting just above the daily pivot point, up approx. 0.1%, at circa 112.50.

EURO

EUR/USD rose by circa 0.5% on the day rising through R1, but falling short of R2, closing the day out at circa 1.1863. EUR/GBP ended the day at approx. 0.8963 after breaching R3, to then revert to close the day out up circa 0.6%, resting at R2. As a safe haven currency the Swiss franc was actively traded on Wednesday, EUR/CHF whipsawed violently throughout the day, appearing the shadow events and the confidence in a resolution being found in Spain, rising initially to R2 then falling through S1, to then reverse direction to close out the day above R2, up 0.7% at circa 1.1574.

STERLING

Sterling sold off in the morning European session as the U.K. chancellor Philip Hammond held court in front of a select committee, whilst delivering some bombshells, such as; suggesting that from March 30th the U.K. could see all flights to the continent of Europe suspended. The pound sold off sharply, to then recover after the traditional PMQs and after prime minister May suggested that hundreds of millions would be pledged to smooth any initial Brexit costs. GBP/USD rose by circa 0.2% to 1.3222, GBP/JPY recovered to breach R1 after falling through S1 in the morning session, ending the day up circa 0.3 at 148.70. GBP/CHF also slumped through S2, to then recover to end the day close to flat, close to the daily pivot point at circa 1.2869.

EQUITY INDICES AND COMMODITY PRICES FOR OCTOBER 11th.

• DJIA closed up 0.18%.
• SPX closed up 0.18%.
• FTSE closed down 0.06%.
• DAX closed up 0.17%.
• CAC closed down 0.02%.
• Gold rose by approx 0.5% to $1293 per ounce.
• WTI oil rose by circa 0.3% to $51.21 per barrel.

KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 12th.

• GBP Bank of England Credit Conditions & Bank Liabilities Surveys.

• EUR Euro-Zone Industrial Production w.d.a. (YoY) (AUG).

• CAD New Housing Price Index (YoY) (AUG).

• USD Initial Jobless Claims (OCT 07).

• EUR ECB President Draghi participates in a panel in Washington.

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