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Dollar Steady before Fed Minutes

Posted by Joseph Trevisani on Oct 8, 2015 11:54:00 AM

The dollar was unchanged against the euro from where it was just before the September 17th Federal Reserve meeting when the governors declined to raise the Fed Funds rate for the first time in a decade despite giving many indications that they world.

The markets will be looking for the logic and information behind that surprise decision when the minutes of the September meeting are released today at 2:00 pm.

In the aftermath of that FOMC statement citing global economic concerns and the lack of American inflation as the reasons for maintaining zero rates in the U.S., the euro soared 1.4 percent and closed on the 17th within points of the high at 1.1435. But the next day the direction reversed and the united currency ended exactly where it had started the day before, finishing on the 18th at 1.1298, less than 10 points from where it had opened on the 17th, 1.1290.

Since then the range in the euro has been barely more than two figures 1.1105-1.1330 as the markets try to figure out if the Fed’s concerns are transitory or indicative of deeper global economic problems.

What the Fed governors were thinking and saying about the global economy in their meeting will be the focus of market analysis when the edited summary is issued today.  Any elaboration on global issues could send Treasury yields and the dollar falling and boost commodity prices and emerging market currencies.

Fed Chair Janet Yellen and several other governors including the New York Fed's William Dudley have said the central bank still expects to raise the Fed Funds rate this year from 0.25 percent where it has been since December 2008. But markets have increasingly put the likelyhood of an increase into the future with futures data predicting just a 41 percent chance of an increase this year.

The International Monetary Fund has said that a  Fed rate increase this year would be a mistake. 

Crude oil touched a three month high yesterday at $49.71, and many commodities have recovered from their August lows with the relative decline in the dollar.

The greenback slipped 1.5 percent in the past week. It was the second worst performer after the yen among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes.

Most global commodities are priced in dollars and move in the opposite to direction to the U.S. currency. 

Commodity currencies including the Australian, New Zealand and Canadian dollar paused in their week-long rally amid new signals of fragility in the global economy.

German exports skidded 5.2 percent in August, far worse than expected and the most since 2009, adding to concerns over the global economy. Imports fell 3.1 percent, hinting that weakness may be spreading to the domestic economy and consumption. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

fomc eur oct 8

bcom oct 8

 

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