“The Fed is trying to change the emphasis from when they raise rates, to the pace at which they do so”.
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The US dollar also weakened against the yen after the Bank of Japan decided against ramping up its stimulus program despite the country’s economy falling into recession.
USA rates futures on Thursday implied traders see a 72 percent chance the Fed will hike rates at that meeting, compared to a 68 percent chance on Wednesday, according to CME Group’s FedWatch.
Precious metals rose 1 percent on Thursday, rebounding from near six year lows as indications from the U.S. Federal Reserve that it may move cautiously into the rate hiking cycle weighed on the dollar and prompted investors to cover short positions.
William C Dudley, the president of the Federal Reserve Bank of NY, who has emphasised the importance of preparing financial markets for liftoff, said on Wednesday before the publication of the minutes that it appeared investors were ready for the Fed to start raising rates.
“The release of the FOMC (Federal Open Market Committee) minutes provided few surprises to market participants: policymakers have become more optimistic on the USA economy, as a rate hike in December now looks almost certain”, said Christopher Vecchio, currency analyst at FXCM-owned DailyFX.
Time and time again, and despite the market’s expectation of a rate lift off, the Fed has been reluctant to raise rates, fearing disruption of the economic recovery process. The premium offered by USA two-year debt over its German counterpart yawned out to 124 basis points, the fattest margin since 2006 and a positive for the dollar.
The rupiah was up merely 0.1 percent for the week, underperforming most regional peers.
The South Korean won rose 0.2 percent, Indonesia’s rupiah added 0.3 percent and the Malaysian ringgit put on 0.6 percent.
Peter Praet, the ECB’s chief economist kept up the speculation saying the so called “zero lower bound” for interest rates was lower than most had originally thought.
“That the dollar is lower signals that this outcome (of the December meeting) is increasingly discounted, particularly in the wake of recent, very heavy USD buying”, said Citi’s Asian head of G10 FX strategy, Todd Elmer.
Cleveland Fed President Loretta Mester repeated her position that the United States economy is now strong enough to absorb a modest policy tightening. Germany’s DAX broke above 11,000 to trade 1.5 percent higher at 11,123.
Mr. Lockhart didn’t explicitly commit to how he would vote when the Fed’s monetary policy committee meets next month, and said he wouldn’t predict the outcome of the December meeting.
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“The forex market has taken its cue from others and emerging market currencies lead the way, while the dollar is weaker across the board”.
