Forex today: FOMC concerned over trade, dollar falls, tests below 95 handle

Forex today was pretty quiet, despite being FOMC minutes day.
There were no fireworks, although the Aussie was fair game on the release making a return trip of around 6o pips.
The FOMC minutes showed that board members were sticking to the script.

It is likely that the Fed will hike again next month but the board members, however, also see that trade, housing and emerging markets as downside risks. The members also expect GDP growth to slow in second half of the year but remain above potential.

Further key notes for the minutes:

Officials note rates moving closer to estimates of neutral.
Further gradual hikes to help keep econ.
Some see fiscal as upside risk, few see as the future downside.
Trade poses important source of uncertainty.
Discussed implication of yield-curve flattening.
The weighed timing of when to stop calling rates accommodative.
Many officials see inflation stable near 2% m-term.
Officials discussed bank counter-cyclical capital buffers.

Elsewhere, renewed political uncertainty is regarded as further headwinds for the dollar and the market considers the ramifications for the Trump agenda and the dollar fell again on Wednesday, despite the FOMC minutes sticking to the script. The DXY dropped below the 95 handle to a low of 94.9340 from the high 95.3770. The 10-year treasury note yield climbed from 2.8190 to 2.8320 and fell back to 2.82 before closing at 2.8260.

The euro was choppy on Wednesday but there were no extremes outside of the FOMC event where the euro rallied as high as 1.1619 ( FOMC minutes show concern about trade war) from 1.1591. The range as otherwise contained between 1.1580 and aforementioned high but 1.16 the figure was a tough resistance level for the majority of the day. Sterling was holding form and made a fresh high up at the 21-D SMA at 1.2928, surpassing that, only just mind - and 1.2935 was traded. There is an air of optimism around Brexit and the US political angst has taken over. Trade disputes will continue to weigh on the greenback and they were noted in the FMCO minutes, which was another plus for the DM currencies vs the greenback on Wednesday. As for the cross, EUR/GBP ended NY at 0.8978 having added +0.1%. Eyes will now look to the August flash PMIs in the EZ with German manufacturing PMIs taking up strong attention - the markets are looking for market 56.5. There will also be the minutes from the July ECB meeting but don't expect too much market reaction. The yen was firm once again at the daily cloud base around the highs of the day at 110.61 vs the greenback. The 100-D SMA also falls in there. Trade risks should keep the pair elevated in a broader stronger tone in the greenback due to inflationary pressures for the US that would follow implications of rising import prices due to tariffs that would follow through to the retail sector in the US - (However, the knee-jerk is to sell the greenback on such concerns on the FOMC). The modest slippage in the yields will favour the yen which is otherwise struggling in a derisking environment at the moment. USD/JPY was confined to a 110.20/61 range on the day which narrowed in NY to between 38/61 on the same handle. The commodity complex remains vulnerable to the EMs that are still in bad shape and if the Fed steers the same course in respect to balance sheet reduction and hiking rates, the complex will come under further pressure in due course - and offshore USD liquidity remains an issue for the EMs. The Aussie continues to trade as a proxy for such risks, and hence, for the time being, while the greenback is on the backfoot, AUD/USD holds firm in the middle third of the 0.73 handle. The Chinese stock market will be key for the pair over the next weeks as trade disputes between the US-China will be a major theme leading up to the G20 in the autumn. AUD/USD ended the NY session at 0.7347 within a range of between 41/70 (FOMC event high - biggest mover) on the same handle.

Key notes from US session:

Note: There are no key market-moving data releases scheduled in Asia on Thursday.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.