Dollar extends losses after milldy dovish Fed minutes; Oct 12, 2017

Market Review - 11/10/2017  21:20GMT  

Dollar extends losses after milldy dovish Fed minutes

The greenback ended the day lower against majority of its peers on Wednesday on geopolitical uncertainty and extended its losses after release of the Federal Reserve's latest meeting minutes which was interpreted by traders as mildly dovish. 

Reuters reported Federal Reserve policymakers had a prolonged debate about the prospects of a pickup in inflation and slowing the path of future interest rate rises if it did not, according to the minutes of the U.S. central bank's last policy meeting on Sept. 19-20 released on Wednesday. 

The readout of the meeting, at which the Fed announced it would begin this month to reduce its large bond portfolio mostly amassed following the financial crisis and unanimously voted to hold rates steady, also showed that officials remained mostly sanguine about the economic impact of recent hurricanes. 

"Many participants expressed concern that the low inflation readings this year might reflect... the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted," the Fed said in the minutes. 

As such several said that they would focus on incoming inflation data over the next few months when deciding on future interest rate moves.   
Nevertheless, many policymakers still felt that another rate increase this year "was likely to be warranted," the Fed said. 

U.S. stocks and yields on U.S. Treasuries were little changed following the release of the minutes. 

Versus the Japanese yen, although dollar rose from 112.23 to session high at 112.59 in Asian morning, price quickly erased its gains and fell to 112.08 at New York open on renewed broad-based usd's weakness. Later, the greenback rebounded strongly to 112.67 in New York afternoon before retreating after the release of Fed's minutes. 

The single currency continued previous day's gain and ratcheted higher to 1.1845 in European morning on broad-based usd's weakness. Price later climbed to session highs of 1.1869 after release of Fed minutes and last traded at 1.1857. 

The British pound retreated from Asian high at 1.3223 to 1.3176 in European morning after Brexit comments by U.K. FinMin Hammond, then marginally lower to 1.3175 in New York morning. Later, cable found renewed buying there and rose to session highs of 1.3234 in post-Fed minutes' New York afternoon. 

In other news, UK Finance Minister Hammond said ' we do have planning for all Brexit scenarios, including no deal; we have to be prepared for no deal scenario unless and until we have evidence that is not where we will end up; do not propose to allocate Brexit funds to departments before spending is needed; money spent on customs border with EU would be money that could not be spent on public services; need to determine what is a realistic 'worst case' scenario for Brexit that we can plan for; key concern for businesses over Brexit is certainty; certainty is more important probably than getting the perfect outcome on Brexit; interim period for Brexit could avoid very large spending on 'nugatory' investment on Brexit arrangements that may prove unnecessary; high degree of consensus among EU partners that transition agreement is sensible; in many Brexit areas such as financial services, only work done so far has come from UK, need EU partners to engage; a transitional arrangement is a wasting asset, would have high value around Christmas and New Year but its value would diminish if only agreed later in 2018; EU partners need to consider importance of speed for everyone when reaching transitional agreement.' 

On the data front, Cabinet Office data showed on Wednesday that Japan core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 3.4 percent on-month in August.  

Data to be released on Thursday: 

U.K. RICS housing price, Japan CGPI, tertiary industry index, France CPI, EU industrial production, and U.S. initial jobless claims, PPI, core PPI.