Dollar extends losses versus other major currencies after FOMC minutes: Oct 9, 2015

Market Review - 08/10/2015 22:30GMT 
 
Dollar extends losses versus other major currencies after FOMC minutes

The greenback extended its losses in New York afternoon on Thursday as details from the Federal Reserve’s latest policy meeting showed a group of central bankers hesitant to raise rates while inflation is low.

FOMC minutes for Sept 16-17 meeting stated 'most participants at Sept FOMC meeting felt conditions for hiking U.S. rates had already been met or would be met by the end of the year; Fed members at last meeting agreed U.S. economy remained on track, but decided it "prudent" to wait for more information before committing to a rate increase; many participants at last FOMC meeting saw global conditions as increasing downside risks to U.S.; policymakers expressed concern over the impact of global; conditions on U.S., but felt the effects on inflation would be passing and on growth would be small; some participants warned that a "premature" rate hike could hurt the fed's credibility if inflation stayed low, while some expressed concerns about delaying a rate increase; several participants worried that inflation could be dragged even lower by oil prices and the high value of the dollar, while a couple expressed "unease" that inflation expectations might also be dropping; Fed discussed strategies for reducing its balance sheet once rates are raised but no decisions made.'

Versus the Japanese yen, U.S. dollar fell after a brief rise to 120.11 in Asia and then tanked to 119.63 before recovering. In New York trading, price rebounded to 119.98 in the morning after upbeat U.S. jobless claims but briefly retreated to 119.79 in New York afternoon as latest FOMC minutes further diminished hopes for a rate hike from Fed later this year before climbing back above 120.00 level to 120.03.

The Department of Labor said the number of individuals filing for initial jobless benefits in the week ending October 3 fell by 13,000 to a seasonally adjusted 263,000 from the previous week’s downwardly revised total of 276,000. It was also the 31st straight week that claims remained below the 300,000 threshold and the lowest level in 42 years, pointing to ongoing tightening in the labor market despite the recent slowdown in hiring.

The single currency edged higher after meeting renewed buying at 1.1235 in Asia and then climbed to 1.1262 in Asian midday. Later, investors shrugged off the downbeat German trade reports and pushed price higher to a high of 1.1315 in European morning before tumbling in tandem with the British pound to 1.1238 in New York morning. In New York afternoon, price gained supported on renewed broad-based weakness in the greenback and rose to a fresh session high of 1.1328 after FOMC minutes before retreating.

Destatis showed Germany’s trade balance fell more-than-expected in August on Thursday. It said that Germany’s Trade Balance fell to 19.6 billion euros, from 22.4 billion euros in the preceding month whose figure was revised down from 22.8 billion euros. Market had expected Germany’s Trade Balance to fall to 22.5 billion euros last month.

Although the British pound found support at 1.5298 against the greenback in Asia and then rose to a fresh 2-1/2 week peak at 1.5372 ahead of BoE decision. Price tumbled after the central bank left its monetary policy unchanged in September and fell to a fresh session low of 1.5266 (Reuters) in New York morning. Later, cable climbed back to 1.5371 in New York afternoon due to renewed broad-based weakness in the greenback followed the release of FOMC minutes.

On Thursday, the Bank of England kept its benchmark interest rate unchanged and announced no change to its asset purchase facility program. The BOE said it was holding the benchmark interest rate at 0.50%. The central bank also said it was to maintain the stock of asset purchases financed by the issuance of central bank reserves at 375 billion pounds.

Reuters news reported BoE minutes. BoE said 'BoE policymakers vote 8-1 to hold rates at 0.5%; BoE policymakers vote 9-0 to maintain stock of QE assets at 375 bullion pounds; BoE policymaker Mccafferty voted to raise rates to 0.75% as domestic cost pressures likely to outweigh sterling effect; UK GDP likely to grow +0.6% qq in Q3, CPI now likely to stay below 1% until spring 2016; unit labour cost increases less than needed to return inflation to target; past appreciation of sterling likely to weigh on CPI, domestic cost pressures need to be stronger; few signs so far emerging markets having "material effect" on advanced economies, but some members see weaker outlook; ONS data revisions showing growth slowing modestly over past year could point to weaker outlook; but such "gentle decelerations" typical of past economic cycles, supply and demand returning to balance; true Q2 unit labour cost growth likely lower than official ONS estimate, could be as low as 1.2% yy; skills shortages in some sectors point to "fairly limited" spare capacity in aggregate; some members saw evidence that lags between changes in rates and inflation "a bit shorter" than thought.'

In other news, IMF's Managing Director Christine Lagarde said 'U.S. recovery broadly on track; an increase in interest rates is approaching; China slowdown, market volatility having larger-than-expected spillovers; policymakers must support growth while also reducing financial risks in 'uncertain world'; Greek debt must be sustainable, our view has not changed; slowdown in Chinese growth was predicted and we believe is a good move; Chinese transition will have "bumps on the road"; welcome more market determined exchange rate in China; this could be her last annual meeting, open to fact that would not be the last, but not her call; if U.S. congress does not ratify IMF reforms soon, will have to look at interim measures.' Later, she added 'most worrying thing is lack of investment, shortage of confidence, fact that growth is modest and uneven; China's slowdown is expected and healthy; Fed's Yellen drew the right conclusions in not raising rates; not expecting currency wars; in not-too-distant future, Latam countries should see benefit from depreciation; if membership wants her to serve a second term, she's open to that.'

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota called for more monetary policy easing. He said 'Fed should consider lowering interest rates; Fed should wait until 2017 to raise rates; rate hikes, once begun, should be at 2-pct-points per year pace; if inflation pressures build, fed could hike rates more sharply; low U.S. inflation is 'huge opportunity' for Fed; Fed should aim to boost prime age employment-to-population ratio to 80%, from 77% now.' Later, he added, 'economic data from China 'more disappointing' than would have thought; one more reason to be cautious about raising rates; a lack of demand is biggest issue facing U.S. economy; central banks have hard time offsetting shocks due to constraints in their monetary policy toolkits.'

Bank of England governor Mark Carney said on Thursday, 'concerned in global economy about big buildup in debts; timing of fed move will not affect timing of eventual BoE move; China's important for the UK but not decisive; on five rate cycles since inflation targeting, BoE sometimes preceded Fed
- anyone who states with certainty the timing of BoE rate rise is not right; timing of rate hike will come into sharper focus at the end of the year; better to do rate hikes right than to do it too early and to have to come back; current global environment is unforgiving; if there are debt buildup issues, they need to be addressed, same with shadow banking; everybody recognizes there isn't going to be a big surge in demand from abroad, pointing to need to act in areas such as debt buildup; in recent troubles, banks have served to dampen volatility, not amplify it; bigger risk at moment, rather than from banks, is from volatility around capital flows from asset management; capital has been withdrawn from emerging markets virtually every month in the past year, causing some strains, but policy regimes are much more resilient; has not exceeded his mandate in speaking about stranded assets; stranded-asset talk is important for companies the BoE regulates; also says it is important in context of financial stability board that he chairs; we do see a hole in that in the market there is not adequate information to manage the transition on carbon; only thing BoE will say as an institution regarding Britain's membership in EU is how British membership affects the achievement of BoE's objectives; most of Britain's low inflation is due to imported prices, especially food and oil; does see wage pressures building, showing natural mechanisms of the economy are working, but taking longer.'

BoJ's Governor Kuroda said, 'it is true emerging market slowdown is affecting Japan's exports, economy; no change to view Japan's economy to continue moderate recovery; Japan consumer spending resilient, capital expenditure remains strong; don't think IMF has strong concerns over china's economy as it didn't cut its growth forecasts for china this time; won't be surprised to see china's economy achieve solid growth in near term as it has room to deploy further fiscal, monetary stimulus steps; hope G20, IMF meetings discuss how members can coordinate policy responses mutually beneficial for their economies.'

Data to be released on Friday:

Australia housing finance, invest housing finance, France budget balance, industrial output, Italy industrial output, UK trade balance, Canada jobs reports, BoC business outlook survey, and U.S. wholesale inventories, whole said sales.