Fed Minutes Lean on QE3, China PMI Next

The US dollar fell hard after the FOMC minutes showed many members ready to pull the trigger on QE3. The Canadian dollar lagged on the day while the yen surged. Chinas HSBC flash manufacturing index will be the highlight of Asia-Pacific trading. The Latest Premium Insights will be released in a few hours.

The market was expecting a slight tilt toward more easing in the FOMC statement because the meeting took place before recent, somewhat upbeat reports on US retail sales and employment but the minutes were overwhelmingly dovish. Many members saw a need for further stimulus fairly soon unless data pointed to a substantial and sustainable strengthening in the economy.

Another portion seemed to indicate that a majority of members were already in favor of extending Fed guidance further out but that they deferred the decision until the September meeting.

The US dollar fell hard after the decision, with USD/JPY falling nearly a cent to 78.28 and gold hitting $1650 for the first time since May. The euro broke above 1.25 and cable extended the previous days strong gains.

The minutes ratchet up expectations for the Aug 31 Bernanke speech from Jackson Hall with the probability of September QE3 now likely above 50%.

The minutes overshadowed other news on the day that included weak Canadian retail sales and comments from European leaders that there will be no decisions on Greece until at least October as they await reports from the Troika.

China will be the focus of the upcoming session with the HSBC flash PMI at 0230 GMT. The prior reading was 49.3 and another sub-50 reading would weigh on AUD and risk assets. The Feds Evans also speaks in Beijing at 0330 GMT. He is a dove and will likely add to the chorus on QE3.

-AB