Dollar Falls Versus Yen as U.S. Data Awaited After Fed Minutes

  • Fed signals Trump uncertainty, concern on recent dollar rally
  • Bloomberg Dollar Index earlier fell by the most since Sept

Foley: Fed, Inflation Already Priced In to U.S. Dollar

The dollar weakened against the yen for a second day as minutes from the Federal Reserve’s latest meeting signaled uncertainty over how President-elect Donald Trump’s policies would impact the pace of U.S. interest-rate increases.

The minutes also touched upon the stronger dollar, which could weigh on inflation and act as a drag on growth by making U.S. exports more expensive. The greenback plunged in Asian hours, depreciating by as much as 1.7 percent against the yen, as moves were exacerbated by a rally in the yuan. The dollar has since pared its losses as traders look to U.S. jobs data released this week.

“The trigger for dollar weakness was the Fed minutes,” said Richard Falkenhall, a strategist at SEB AB in Stockholm. “The general view is that there’s a lot of uncertainty on what to anticipate when it comes to fiscal policy going forward. The market has already been pricing in a lot when it comes to Trump expectations, so this was a bit of a natural reaction at this point” for the dollar to falter.

The Bloomberg Dollar Index, which measures the greenback against 10 global currencies, fell as much as 0.8 percent on Thursday, which was its biggest drop since Sept. 6. It trimmed some of those moves and was last down 0.2 percent.

The index had appreciated 5.2 percent between Nov. 8, the day of the U.S. elections and the end of FOMC’s meeting on Dec. 14. Since then it has strengthened an additional 1.1 percent.

The Fed sounded concerned about the “strength of the dollar and its potential negative impact,” Falkenhall said. “They haven’t been mentioning the dollar for a while but now after its appreciation, it’s back in the minutes as a downside risk to growth. It can also make it tough, according to Fed members, to get inflation back toward the target.”

  • The move lower in the dollar was a “healthy short-term correction,” according to analysts at ING Groep NV, including Chris Turner, head of currency strategy.
    • They look for “catalysts, such as today’s ADP or Services ISM, or tomorrow’s NFP as opportunities to re-establish long-dollar positions”
    • The Bloomberg Dollar Index could reach 1255, ING analysts predict. The index is currently at 1269
  • “The dollar extended its losses in Asia, but the participants saw the pullback as a buying opportunity,” analysts at Brown Brothers Harriman write in a note; “dollar actually enjoying some upside momentum despite being down on the day”
  • Main focus is on U.S. jobs report Friday which economists surveyed by Bloomberg estimate will show employers boosted payrolls by 180,000 people in December, and the unemployment rate at 4.7 percent
  • USD/JPY drops 0.5% to 116.67, extending Wednesday’s fall of 0.4 percent
    • Double-top pattern in the making; ichimoku baseline probed at 115.77, first time since day of Trump win; $1.7b option expiry today at 115.50
  • EUR/USD little changed at 1.0499, after rising as much as 0.8% earlier
    • Rallies to 1.0579 Fibonacci; mind the large option expiry today and tomorrow at 1.05 strike
  • NOTE: Fed Officials Grapple With a Welcome New Problem: Faster Growth: Link

— With assistance by Sejul Gokal

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