The dollar dropped Thursday as records from the Federal Reserve’s last meeting dampened hopes of an imminent U.S. interest rate hike.
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According to the minutes released on Wednesday, some voting Federal Reserve policymakers believed that a USA interest rate increase will soon be needed, although there is a general agreement that more data is needed before such a move.
While the wage outlook is confusing, “the more reliable” wage measures, the employment cost index and average hourly earnings, “are showing a very modest, but sort of steady, acceleration in wages”, Dudley said. According to data from Tradeweb, benchmark and peripheral 10-year notes saw yields falling, with Spanish debt leading the way, its yield hitting new intraday and closing lows of 0.911% and 0.919%, respectively.
“The strong housing starts and industrial output performance will bolster the Fed confidence that growth momentum has rebounded, potentially supporting the bias for a near-term hike”, said Millan Mulraine, deputy chief economist at TD Securities in NY.
Investors are waiting for the minutes from the Federal Reserve’s July policy setting meeting, due to be released later in the afternoon.
Japan’s Nikkei .N225 erased earlier gains to trade 0.1 percent lower, set for a weekly loss of 2.6 percent.
Growth is expected to pick up in the second half of the year, which would further bolster the case for more rate hikes. They believe there’s a 45% chance of a rate hike in December, up from 35% last Friday, according to CME Group.
The minutes disappointed those who had bet that the Fed could be more hawkish after comments from influential New York Fed chief William Dudley on Tuesday that “it’s possible” for rates to be hiked at the September 20-21 policy meeting.
In late NY trading, the euro rose to 1.1354 dollars from 1.1291 dollars of the previous session, and the British pound climbed to 1.3152 dollars from 1.3056 dollars.
“I don’t think anything in these minutes supports a quicker rate increase and again, I think that they’re data dependent still”, Chris Gaffney, president of Everbank World Markets in St Louis, told Reuters.
The dollar index dipped 0.1 per cent to 94.611, having lost about 0.7 per cent so far this week, during which it touched a 7-week low of 94.426 on Tuesday.
Yellen will be giving a speech on August 26 to an annual conference of central bankers in Jackson Hole, Wyoming – a speech that many investors will doubtlessly listen to very carefully for clues about a rate hike.
It would also boost the dollar making the greenback-denominated metal more expensive to foreign currencies, reducing demand. Australian shares added 0.2%, heading for a 0.2% decline for the week.
“When we did not receive the unambiguous hawkishness from the FOMC minutes, that kind of opened up the door to additional (dollar) selling”, said Kathy Lien, managing director at BK Asset Management in NY.
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Home price rises in China’s biggest cities showed signs of easing in July, adding to concerns that one of the economy’s key growth drivers is losing steam but offering some relief for policymakers anxious about property bubbles.
