© Reuters. One US dollar banknote
By Tom Westbrook
SINGAPORE (Reuters) – The dollar clung to overnight gains on Thursday after last month's Federal Reserve minutes gave little indication of whether an even more cautious policy change might be possible this fall, disappointing some dollar bears .
A sharply truncated greenback saw its largest one-day rise since March post-release, hitting 93.159 versus a basket of currencies, about 1% above Tuesday's two-year low. The move erased previous wins from other majors.
Speculation was rampant. As part of a broader policy review, the Fed will set an average inflation target and seek to push inflation above 2% to make up for the years it has been falling.
However, the minutes on the issue were vague, saying only that "a number" of Fed members felt it would be helpful to at some point make a revised policy statement without giving details or timing.
After hitting an 18-month high of $ 0.7275 prior to the meeting, the Australian dollar fell back below 72 cents to last at $ 0.7186. The New Zealand dollar fell nearly 1.4% from its intraday high to $ 0.6561.
The euro – the worst-hit of all recent greenback winners – fell 0.7% overnight, trading back below $ 1.19. It was last at USD 1.1841 (). The pound slid back to $ 1.3103 and the dollar rose 0.7% against the yen to $ 106.13.
"Traders were hoping (the minutes) would cement a clear consensus among the ranks of the Fed on a number of key changes at the September 18 meeting," said Chris Weston, chief research officer for broker Pepperstone.
"(But) there seems to be little consensus within the Fed collective to introduce an inflation regime for which so many have positioned themselves."
The minutes also sounded pretty grim about the U.S. economy and skeptical of capping government bond yields to encourage recovery and investment – which resulted in a modest government bond sell-off.
The dollar's rebound comes after short bets against the world's reserve currency rose to their highest level since 2011 last week and long bets on the euro hit a record high in what some investors consider to be a short-lived slip.
"All it took to get the dollar going was a catalyst; the protocol provided the catalyst," said Joe Capurso, Commonwealth Bank of Australia (OTC 🙂 currency analyst.
"Even so, we still expect the dollar to go lower. The rest of the world economy, led by China, is recovering … we are viewing the decline overnight as a short-term pothole along a road that has higher trends."
For the Fed, the focus is now shifting to whether more will be announced at the Jackson Hole virtual symposium on August 27-28 or at the September meeting.
On Thursday, investors expect China to hold its policy rate stable if it is set at 01:30 GMT.
Later in the day, weekly US jobless claims are projected to drop below a million, and markets are cautiously waiting for the Philadelphia Fed Business Index at 1230 GMT after a disappointing reading from New York earlier in the week.
Disclaimer: Fusion Media would like to remind you that the information contained on this website is not necessarily real-time or accurate. All CFDs (stocks, indices, futures) and Forex prices are not provided by exchanges, but by market makers. As a result, prices may not be accurate and may differ from the actual market price. This means that the prices are indicative and not suitable for trading purposes. Therefore, Fusion Media is not responsible for any trading losses you may incur as a result of using this information.
Fusion Media, or persons involved with Fusion Media, assume no liability for any loss or damage caused by reliance on the information contained on this website, such as data, offers, charts and buy / sell signals. Please be fully informed about the risks and costs associated with trading in the financial markets. This is one of the riskiest forms of investment possible.