FOMC minutes fail to provide catalyst for further USD strength – MUFG

The US dollar has continued to weaken in the Asian trading session following the release overnight of the latest FOMC minutes from their meeting on the 14th December notes Lee Hardman, Currency Analyst at MUFG.

Key Quotes

“US dollar weakness accelerated after USD/JPY broke below the 117.00- level. The FOMC minutes have triggered a temporary correction lower for the US dollar which in part backs up our view that recent strength appears to have been running a little ahead of the improvement in key short-term fundamental drivers. US yields have recently stabilized at higher levels creating a less supportive environment for further US dollar upside in the near-term which will likely require a fresh catalyst.”

“The latest FOMC minutes did not provide the fresh catalyst required to re-energise the Trump reflation trade. On balance the minutes were hawkish providing further evidence that the Fed is shifting towards a faster pace of rate hikes in the coming years. Almost all FOMC participants indicated that upside risks had increased to their forecasts with prospects for more expansionary fiscal policy. However, the uncertainty around the timing, size and composition of fiscal stimulus continues to warrant some caution in the near-term.”

“The updated economic forecasts prepared by the Fed’s staff also stuck a more cautious tone by anticipating that economic growth was only likely to be “slightly higher” over the next several years as the likely increase in fiscal stimulus would be “substantially counterbalanced” by higher interest rates and a stronger US dollar. In these circumstances, the US dollar should continue to find it more difficult to advance further in the near-term.”