Euro rises to 1.2602 briefly after FOMC minutes before retreating: Nov 20, 2014

Market Review - 19/11/2014 22:49GMT

Euro rises to 1.2602 briefly after FOMC minutes before retreating

The single currency briefly rose to 1.2602 after the release of FOMC minutes, however, renewed dollar's strength knocked price lower to 1.2525 in late New York.

FOMC minutes showed many Federal Reserve policy makers last month said they should be on the lookout for signs of a decline in expectations for inflation. The minutes also indicated the members "continued to expect inflation to move back to the committee's 2 percent target over the medium term as resource slack diminished in an environment of well-anchored inflation expectations.”

The greenback maintained a firm undertone throughout the day on Wednesday. Despite the brief retreat to 117.38/40 after the release of FOMC minutes, the pair rallied again to a fresh 7-year high at 118.07 near New York close due to dollar's broad-based strength elsewhere.

Bank of Japan kept its monetary policy unchanged as widely expected. BoJ said 'Japan's economy making some weak movements mainly on output but continues to recover moderately as a trend; raises assessment on exports; Japan CPI likely to hover around current positive levels for time being; output remains somewhat weak; capex in gradual uptrend as corporate profits improve; impact of sales tax hike on consumption subsiding as a whole; housing investment appears to be bottoming out.'

BoJ Gov Kuroda said in the news conference that positive economic cycle remains intact; Japan economy continuing moderate recovery as trend despite some weakness particularly in production; exports to recover moderately ahead due to overseas econ recovery, weak yen; private consumption remains firm as trend, sales tax hike impact to wane gradually; Japan economy to continue moderate recovery trend, sales tax hike impact to dissipate gradually; CPI likely to hit 2% around fiscal 2015/16; will continue with QQE as long as necessary to achieve 2% inflation goal in a stable manner; will examine upside, downside risks to economy and adjust policy as appropriate; expand QQE expected to strengthen transfer mechanism of monetary policy; expect increased QQE to change deflation mindset, support positive cycle in economy; very important to maintain trust in Japan's public finances.

Despite cable's brief retreat to session low at 1.5590 just before the release of BoE minutes, the British pound jumped to 1.5701 as MPC minutes showed 2 policymakers (Weale n McCafferty) supported a rise in interest rates. The British pound later rose to 1.5720 after FOMC minutes before retreating.

BoE MPC meeting minutes stated 'external members Martin Weale and Ian McCafferty voted for rate rise to 0.75%; was a "material spread of views" on balance of risks to the outlook among members who voted to hold rates; now more evidence that UK growth would slow to around or slightly above historical average rates; there was a question whether private domestic spending would remain strong enough to offset fiscal squeeze, subdued external demand; risk that any remaining slack might soon be exhausted, causing inflationary pressure to build; some members who voted to keep rates on hold saw a risk that spare capacity would be eliminated more quickly than forecast; some members who voted to keep rates on hold saw risk growth might soften further than anticipated, inflation might persist below target for longer than expected; small probability of prolonged below-target inflation creates "at least the possibility" that medium-term inflation expectations would begin to drift downwards.'

Thursday will see the release of Japan's export, imports, trade balance and manufacturing PMI, China HSBC manufacturing PMI, BoJ monthly economic survey, Germany's producer prices ad Markit service PMI, EU Markit PMI, U.K. retail sales, CBI trade, Canada's wholesale trade, U.S. CPI, Markit manufacturing PMI, Philly Fed business index, existing home sales, leading index change and consumer confidence.