The US Dollar edged higher on Wednesday as the focus turned to the minutes of the Federal Reserve’s last policy meeting for hints on the future pace of U.S. monetary tightening.
The two main reasons underlying recent stock market volatility have been a spike in wage growth and expectations that the Federal Reserve may raise interest rates more rapidly than anticipated this year as higher growth rate of inflation could be expected in the near future. This week’s release of minutes from the Fed’s January 30-31 meeting could shed more light on Fed policymakers’ outlook.
The dollar index rose 0.1% to 89.805, which was up about 1.8% from Friday’s three-year low of 88.251.
The U.S. currency has weakened against the yen and other major currencies in recent months. Even with the positive outlook from rising U.S. interest rates, bearish factors offset the strength of the greenback including worries that the United States could pursue a weaker dollar policy. The U.S. budget deficit could surge to more than $1 trillion in 2019 on large government spending and large corporate tax cuts which have undermined the greenback’s performance.
Later today, investors will turn their attention to the minutes released by the U.S. Federal Reserve, the last policy meeting of Janet Yellen as a Fed chair. A more aggressive tone to the minutes could prompt markets to price in the risk of faster U.S. interest rate hikes and help lift the dollar further away from the 3-year lows experienced last week.
FOMC Minutes and Interest Rate Hikes
Daily Analysis - 21/02/2018