Analysts at ANZ explained that the USD continued its sell-off following news of the legal convictions of Trump advisers and the calmer tone in emerging markets.
“There was little in the Fed minutes for FX or rates markets to latch onto. EUR/USD has now unwound all its Turkey-related weakness. The focus is now turning to the preliminary August PMI data and Powell’s speech at the Jackson Hole symposium on Friday.”
“Fixed income markets remained becalmed with the yield on the US 10-year note oscillating around 2.825%. Risk assets were mildly positive. The German DAX was flat, the French CAC 40 rose 0.2% and the UK FTSE 100 was up 0.1%. In the US, the S&P500 was down 0.1%, the Dow fell 0.3% and the Nasdaq lifted 0.4%.”
“WTI rose a sharp 3.1% to USD67.9/bbl as US crude stockpiles fell 5.84m barrels, the biggest drop in four weeks. Gold was little changed at USD1195.3/oz.”
Fed minutes stick to the script
“Fed minutes this morning had relatively little impact on markets. “Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation”. The Fed has now raised the fed funds rate in 25bp steps seven times, and it was noted that “fairly soon” it would no longer be appropriate to describe rate settings as “accommodative”. Another hike next month is 92% priced (90% yesterday). So far, there is little evidence that the tighter policy is slowing the fiscal-fuelled juggernaut that is the US economy, but the cooling in the housing market is arguably a notable exception. Meanwhile, here in New Zealand, the market continues to price a decent chance that the next OCR move is a cut after the very dovish Monetary Policy Statement earlier this month. That divergence, plus increasing evidence that New Zealand commodity prices may be past their best, means we expect the NZD to remain under pressure over the rest of the year (despite a decent bounce in the past week). We are forecasting NZD/USD at 0.62 by year end.”