The US dollar changed little after the Fed minutes
Euro banknotes with different values.
Jens Buttner | photo alliance via Getty Images
The dollar was slightly higher on Wednesday after the minutes of the last U.S. Federal Reserve policy meeting were released, which showed Fed officials grappling with emerging inflation and financial stability issues, but not much. surprise.
Last month, Fed officials estimated that further substantial progress on economic recovery “was generally considered not to have been achieved yet,” but agreed they had to be prepared to act if inflation or other risks were materializing, according to the minutes of the central bank’s policy meeting in June. .
The greenback eased a bit after the minutes were released, then reversed course and rallied slightly.
“Today’s update only serves to confirm that the Fed will most likely reduce its asset purchases this year,” said Kathy Lien, chief executive of BK Asset Management.
The dollar index, which measures the greenback against a basket of comparable currencies, rose 0.135% to 92.664, consolidating near its recent three-month high, even as U.S. bond yields fell to their lowest level since February.
Pressure from falling bond yields, along with some recent weak economic reports, likely contributed to the greenback’s lackluster reaction to the Fed minutes, Lien said.
But the US economy is emerging from the COVID-19 pandemic in better shape than Europe and Japan, which bodes well for the greenback, she added.
“At the end of the day, there wasn’t a big reaction, but I don’t think that stands in the way of an extension of the dollar’s gains,” she said.
One of the main drivers for exchange rates in the second half of the year will be the divergence between central banks that begin to cut monetary stimulus, based on strong economic fundamentals, and those that do not, said Win Thin. , global head of monetary strategy. at Brown Brothers Harriman.
The US dollar index is currently trading more than 3% above what it was in February when US yields were this low for the last time, he said.
“Which brings us back to the anticipated economic performance of the United States and the possible withdrawal of the Fed’s stimulus measures,” he said.
The euro hit a three-month low against the dollar on Wednesday after German data raised doubts about the strength of the economic recovery.
The European single currency changed hands at $ 1.18035, after earlier hitting a three-month low at $ 1.17815. Against the yen, it fell to 130.535 yen, approaching its two-month low of 130.05 set on June 21.
Investor sentiment in Germany, the eurozone’s largest economy, fell sharply in July, although it remained at a very high level, the ZEW economic research institute reported.
Other risk-sensitive currencies were hit after the fall in oil prices, as OPEC producers canceled a meeting when major players were unable to come to an agreement to increase supply.
The Australian dollar plunged 0.14% to $ 0.7484, leveling off after a rebound on Tuesday when the Reserve Bank of Australia took a first step towards reducing stimulus.
The RBA announced a third round of its quantitative easing program, albeit on a smaller size than the previous two cycles, while retaining the April 2024 bond for its three-year return target of 0.1% .
The Japanese yen traded little at 110.590 yen to the dollar, still holding on to its gains from its 15-month low of 111.64 reached last week.