Dollar weakness continues as Fed release dovish minutes

Yesterday’s markets

9th October 2015

  • UK MOC Official Bank Rate Votes: 1-0-8
  • UK Monetary Policy Summary
  • UK Official Bank Rate: 0.50%
  • UK Asset Purchase Facility Votes: 375B
  • EUR ECB Monetary Policy Meeting Accounts
  • US Unemployment Claims: 263K
  • UK BoE Gov Carney Speaks
  • FOMC Meeting Minutes
  • AUD Home Loans m/m: 2.9%

Yesterday Sterling declined after the conclusion of the BoE meeting and the minutes were released. The market has already parred its expectation for a hike in early 2016 to Q4/16 following some disappointing data. The minutes justified this move in sentiment. As expected the vote was 8-1 to keep rates on hold with Ian Mccafferty once again voting for a hike. The BoE went on to state that the economy probably grew at a rate of 0.6% for Q3 which is down from Q2. Business surveys are consistent with easing growth in the economy. With regards to inflation they stated that near term inflation has weakened since August and they see it below 1% until spring 2016.

There has been some slightly contrarian reports and lines of thinking with regards to the US economy following their failure to raise interest rates and back-to-back disappointing unemployment data. The fear is that the slowdown in employment will result in the loss of momentum of growth. The contrarian thinking is that we could see a fourth round of QE or negative interest rates to reboot the economy. On Tuesday, a tier one US investment bank published an article titled “What is more likely QE4 or negative rates” whilst we have seen comments from investment managers that are expecting both a hike in rates and QE4. We don’t believe that QE4 or negative rates are on the horizon but if we do see momentum from the US continue to decline then it is a possibility and will result in US Dollar weakness.

Given the ongoing uncertainty from the US economy the FOMC minutes were closely watched last night. The minutes cited the Chinese slowdown as a reason to delay lift-off in September. The dovish tone continued as the participants anticipated that the recent global developments would likely put further downward pressure on inflation in the near term. The Dollar continued to weaken against its major counterparts after the release of the somewhat dovish Federal Reserve minutes.

Today’s markets

8th October 2015

  • UK Trade Balance
  • CAD Employment Change
  • CAD Unemployment Rate
  • US Import Prices m/m
  • FOMC Member Lockhart Speaks
  • FOMC Member Evans Speaks

Markets will be digesting Thursdays Central Bank statements with little on the economic docket. FOMC member Lockhart is scheduled to speak at 14:10 this afternoon at the University of New York’s Graduate School of Journalism, however his tone probably will not differ from yesterday’s FOMC minutes.