Dollar ends mixed after Fed minutes show a split in rate hike outlook: Jul 06, 2017

Market Review - 06/07/2017   00:54GMT  

Dollar ends mixed after Fed minutes show a split in rate hike outlook

Despite a brief drop in New York immediately after the release of the Federal Reserve's FOMC meeting minutes, the greenback pared intra-day losses and staged a short-covering rebound but later moved narrowly for rest of the afternoon session. 

Fed released its FOMC minutes, which stated 'most Fed policymakers viewed recent softness in inflation data has having little bearing on inflation trend; several Fed policymakers saw recent increase in import prices as consistent with inflation rising in medium term; several Fed policymakers were concerned recent softness in inflation might persist due to limited pass-through from resource utilization; several Fed policymakers wanted to announce start of balance-sheet trimming within a 'couple of months,' others wanted to wait until later in 2017; Fed Chair Janet Yellen suggested announcing new approach to balance sheet plan at June 13-14 meeting; Fed policymakers discussed possible reasons why financial conditions had not tightened following hikes in Fed funds rate; almost all fed policymakers supported June hike; one wanted to wait until inflation rose.' 

Versus the Japanese yen, although dollar dropped to session low at 112.83 in Asian morning, price pared its losses and rallied to an intra-day high at 113.69 in European morning. However, price met renewed selling there and retreated to 113.08 in New York morning on broad-based buying of yen, price briefly fell to 112.99 after the Fed minutes and later rebounded. 

Despite edging up to 1.1369 in Asian morning, the single currency met renewed selling there and tumbled to session lows of 1.1313 in European morning on dollar's strength together with cross-selling of euro especially vs sterling. Later, price pared its losses and staged a short-covering rebound to 1.1356 in post-Fed minutes New York afternoon. 

Although the British pound edged up to 1.2948 in Asian morning, price dropped in tandem with euro to an intra-day low at 1.2894 in European morning due partly to release of weaker-than-expected UK services PMI. However, cable pared its losses and staged a recovery to 1.2936 in New York morning. Despite intra-day knee-jerk reaction to the Fed minutes, the pound later inched higher in late New York trading. 

Market research group Markit said the seasonally adjusted IHS Markit/CIPS services purchasing managers' index (PMI) decreased to 53.4 last month from a reading of 53.8 in May. Analysts had expected the index to drop to only 53.5. 

In other news, ECB's Coeure said 'market volatility over past week not significant; has not discussed changing policy; discussion may come but 'hasn't happened yet'; some steepening at long end of curve reflects views that growth will be solid.' 

On the data front, he U.S. Census Bureau said factory orders decreased by a seasonally adjusted 0.8% in May, compared to expectations for a decline of 0.5%. Factory orders dropped 0.3% in February in a downward revision from what had been a 0.2% decrease. 

Data to be released on Thursday: 

Australia imports, exports, trade balance, Germany industrial orders, Swiss CPI, U.S. trade balance, jobless claims, ISM non-manufacturing PMI, Canada imports, exports and trade balance.