About Those Fed Hikes

US growth is better, no doubt, but a big part of the Fed is saying growth still isn't strong enough to create inflation and that could have major implications for the dollar. USD lagged badly after the FOMC minutes while the kiwi and pound were the top performers on the day. Japanese machine orders are the highlight later.  In our latest  Premium Insights,  EURUSD, USDCHF,  USDCAD, AUDUSD and NZDJPY are all in progress,  with USDMXN stopped out.

The Fed is putting on the brakes on rate hike expectations and that has put the brakes on the USD rally. The dollar was near session highs ahead of FOMC minutes as traders prepared from some indication the Fed would remove 'considerable time' in Oct but instead the minutes lamented slow overseas growth and dollar strength.

The response was dramatic with the dollar falling 140 pips against the pound, more than 100 pips against the commodity block and slightly less against the euro and yen. The stock market touched the lowest since Aug 8 in the early going then blasted 42 points higher to close with the largest gain this year.

The question traders are asking themselves now: Is this the start of a larger dollar retracement. Technically, it's tempting to say yes because the dollar index has gained for 12 weeks in a row. The Fed rhetoric might add a fundamental factor into the equation but we caution that the Fed minutes are from a meeting weeks ago.

For the next signal, we'll look to the full slate of Fed speakers in the week ahead but we warn that hawks like Bullard, Plosser, Fisher and George can safely be ignored.

The market has plenty to digest in the hours ahead. At the same time, Japan releases machine orders at 2350 GMT with a 4.9% y/y decline expected.