The U.S dollar’s trajectory took a sharp south-bound turn overnight, once again driven by U.S stimulus expectations. The release of the Fed policy meeting minutes were the primary catalyst for greenback losses showing the consensus across the committee is in favour of further monetary accommodation “fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” Although members remain cautious of the implications, the minutes show support for further asset purchases has gained further traction in addition to explicate guidelines on how future economic performance may shape policy decisions.
This willingness from the FOMC still keep QE in their armory induced a recalibration of expectations, resulting in notable losses from the greenback. The most pronounced move came from the USDJPY pair which slid over 1-percent in the ensuing period while the Euro, sterling, and commodity bloc currencies also received a solid leg-up by default. The Euro broke the upside of key short-term resistance at 1.2485/90 region exacerbated by light liquidity amid existing support as short-players continued to be squeezed out of the market.
With each new data point or Fed correspondence released we’re seeing markets recalibrate stimulus expectations with immediate and decisive moves from the greenback suggesting markets have little in the way of conviction over the Fed’s next move. Its clear markets are consumed with central bank easing expectations from both sides of the Atlantic and every data pulse has investors crossing the veritable minefield in an attempt to pre-empt central banks. Before the next policy meeting in September, markets will be closely watching the Fed’s latest economic assessment at the Jackson Hole conference on August 31, with the hope Fed Chairman Ben Bernanke will use the event as a platform to signal QE3. Between now and then, market participants are on high alert looking for any under-performing top-tier data point’s to increase the chances.
The Australian dollar regained some of its sheen against the greenback, returning above 105 US cents but remained out of favour against its risk currency counterparts and significant gains from the Japanese Yen. Today’s economic data has the ability to make or break overnight gains as investors turn to the release of the HSBC China flash manufacturing PMI and leading index.