Intraday Market Thoughts

Fed Minutes & Geopolitics Balance out on USD

by Adam Button
Apr 11, 2018 19:28

USD struggles to hold on to gains sustained following the release of the March FOMC minutes revealed growing support for further tightening and improved view over growth and inflation. US-Russia relations hit hard by President Trump's statements on international espionage and threats of US strike on Syria and reports of Iranian-backed missiles seen above Saudi capital are all driving oil above $67 --- highest since December 2014. CAD and JPY were the highest performers of the day ahead of the minutes following the release of a March CPI at at 0.2% as expected. The premium short USDCAD trade was closed for 230-pip gain. Below is the week's Premium video.

The minutes indicated: “A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected”. Yet, most Fed members saw wage gains as "moderate", while a strong majority of Fed officials saw "trade war a downsid risk".

Aside from broad USD weakness, EURUSD remains boosted by ECB's Nowotny declaring the end of QE on Tuesday before the ECB walked back his comments, sending the euro for ride. Nowotny said the ECB will end asset buys by year-end then talked about raising the deposit rate in a speech in Austria. The market entirely expects an announcement to end QE this summer but Nowotny's early nod sent the euro a half-cent higher. An ECB spokesman later announced that he was only speaking for himself. Novotny is an experienced member of the Governing Council so it's an odd mistake for him to make, or perhaps odder that the ECB made the retraction. Today, EURUSD is up for the 4th straight day. 

In the bigger picture, risk appetite was buoyant after Xi's attempts to de-escalate the brewing trade war. That was later followed by a tweet from Trump thanking him for the progress. The change in tone sent the commodity currencies and equities solidly higher.


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