The recent recovery in the USD abruptly ended, with Trump back in the headlines and the market interpreting the FOMC minutes to the dovish side. These factors have also helped drive UST yields lower.
After a number of CEO’s quit two key advisory groups of American business leaders, Trump said that he would disband the business councils. This follows widespread condemnation of Trump’s response to protests by white supremacist groups over the weekend. It’s another nail in the coffin for Trump’s policy agenda.
The news sent the USD and US rates lower, with reaction to the FOMC minutes this morning adding to the move. The minutes noted that “several” Fed officials said inflation risks could be to the downside and “many” officials saw sub 2% inflation for longer than expected. These comments were balanced out by “most” participants indicating that they expected inflation to pick up over the next couple of years and ”many” participants noting that much of the recent decline in inflation had probably reflected idiosyncratic factors. Elsewhere in the minutes there was plenty of discussion on the low inflation environment, with some thinking that technology and global disinflation have been disruptive factors.
The various USD indices are about 0.4% lower. Commodity currencies have been the best performers, with the AUD up 1.2% to 0.7920, the NZD up 1% to return to the 0.73 mark and the CAD up 0.7%. NZD/AUD fell to as low as 0.9202 before recovering to 0.9225, around the level of the NZ close. Metal prices continued their strong run on tightening supplies and strong global demand, with zinc prices up to a decade-high, aluminium approaching a 3-year high and gains for copper and lead. Oil prices fell around 1½%, with traders focused on the EIA report of strong crude production and ignoring the drop in stockpiles.
EUR was hit last night as reports came through that ECB President Draghi would steer clear of any major policy announcement when he speaks at next week’s Jackson Hole symposium. EUR reached a low of around 1.1680, but the USD reversal has seen it recover to 1.7770, while the NZD’s outperformance sees NZD/EUR back up to just over the 0.62 mark.
GBP got a boost after data showed the UK unemployment rate unexpectedly falling to 4.4%, its lowest rate in over 40 years. Wage growth was stronger than expected but real wage inflation was still negative. However, GBP met resistance at 1.29 and has been one of the worst performers alongside the USD. This sees NZD/GBP to 0.8% to 0.5670.
USD/JPY was tightly range bound until the US news drove USD/JPY down 0.5% to 110.15. The 80 handle has returned for NZD/JPY, with the cross rising to 80.4.
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