After the US Federal Reserve (Fed) released the minutes of its meeting on Wednesday (17th), the US dollar index fell short-term, then rebounded and closed slightly higher. Worries about a weakening Chinese economy weighing on commodity demand have extended recent weakness in commodity currencies.
The ICE U.S. Dollar Index (DXY), which tracks the greenback against six major currencies, was up 0.14% at 106.65 in late New York trade. After the minutes of the meeting were released, DXY fell short-term and then rebounded.
Officials at the meeting saw little evidence that inflationary pressures were easing and that to control inflation, interest rates would have to reach sufficiently restrictive levels for a sustained period, the minutes showed. However, the minutes of the meeting did not explicitly indicate that the meeting next month will raise interest rates at a specific rate, only that the rate of future interest rate hikes will depend on economic data. Ahead of the September meeting, the US will also release August consumer price index (CPI) and nonfarm payrolls data.
The Fed also reiterated its argument that the pace of tightening should be slowed down the road and spoke of the risk of over-tightening, with many officials noting that they believe the Fed may tighten monetary policy more than it can restore price stability.
Brian Daingerfield, head of G10 foreign exchange strategy at NatWest Markets, said some Fed officials believe there may be risks of over-tightening for the rate-sensitive industries that are beginning to show signs of slowing.
Fed Chairman Jerome Powell said at the July meeting that the Fed’s rate hikes are still affecting the economy, but it will depend on the inflation response in the next few months, and the Fed may start to slow down the pace of rate hikes.
“The minutes were a little more dovish than what I heard from FOMC officials after last month’s meeting,” Daingerfield said.
After the Fed’s minutes were released, the market’s probability of a three rate hike in September fell to 40 percent from 52 percent earlier on Wednesday, and the chance of a two rate hike is now 60 percent.
In economic data, U.S. retail sales were flat earlier in July from the previous month, mainly reflecting a decline in gasoline prices and auto sales, but other items showed consumer spending remained solid, helping to ease concerns about an economic slowdown.
“Everyone is looking at whether the Fed is in a situation where it needs to raise rates significantly and whether the economy can take it, and it looks like it’s okay,” said Edward Moya, a market analyst at OANDA.
The euro edged up against the dollar, up 0.07% to $1.0175, while the greenback was up 0.67% against the yen at $135.09. Sterling fell 0.37% to $1.2050 after data showed that UK CPI surged to a 40-year high in July.
The Australian dollar fell 1.20 percent to $0.6935 against the U.S. dollar, as concerns over demand for commodities such as iron ore were weakened by a weakening Chinese economy.
The New Zealand dollar was also down 0.98% at $0.6279, paring earlier gains. New Zealand’s central bank raised interest rates seven times in a row on Wednesday and signaled more hawkish tightening in the coming months as a way to suppress stubbornly high inflation.
As of Thursday (18th) Taiwan time about 6:00 Price:
The dollar index was at 106.6534. +0.1482% EUR/USD (EUR/USD) was quoted at 1.0176 USD. +0.0885% GBP/USD (GBP/USD) was quoted at $1.2050. -0.3638% The Australian dollar against the US dollar (AUD/USD) was quoted at 1 Australian dollar to 0.6936 yuan. -1.2107% The US dollar against the Canadian dollar (USD/CAD) was quoted at 1.2910 Canadian dollars per US dollar. +0.4982% The U.S. dollar was quoted at 135.09 yen against the Japanese yen (USD/JPY). +0.6407%