The release of the FOMC minutes provided little new impetus to foreign exchange markets. Even though the USD and rates spike immediately on the headline release, the details provided any support for the hawks, leading the USD and US rates to consolidate their gains. While some observers had anticipated the minutes to reveal a more hawkish tilt, we got little new information from the Fed. Instead, the minutes were pretty much in line with the June 18 Statement and press conference – where Yellen maintained her dovish tone.
The only major highlight was operational (namely, many participants agreed that the interest on excess reserves (IOER) should play a central role in policy adjustment) with little implication for the global foreign exchange market. In regards to the economic outlook, the minutes highlighted that the unemployment rate remained “elevated” and that participants were not particularly worried about inflation.
The biggest surprise might have been the statement that “investors were not appropriately taking account of risks in their investment decisions.” Be that as it may, with the Fed unlikely to raise the policy rate anytime soon these concerns are unlikely to have any financial market implications.
Overall, the bottom line is that no news on the policy front remains good news for high-yielding currencies and bad for USD. Looking ahead, we stick with the long carry/short USD theme ahead of Yellen’s Humprehy Hawkins testimony next week given her recent public comments and dovish tone.
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