Fed minutes confirm December meeting is ‘Live’

The October FOMC meeting minutes which were released yesterday showed a consensus being built among the Fed members as the December rate hike decision looms. Most of the Fed members were of the opinion that the US economy was ready for a monetary policy tightening cycle despite some members not very ‘confident that inflation would reach the 2.0% target.

Nonetheless, with diminishing risks from the global economy the Fed members believe that, with all things being equal and there are no adverse disappointments in the US economic data, the decision to hike rates will be taken in December. However, doubts remain as some members felt that the current performance of the US labour markets wasn’t going to sustain itself while the PCE inflation could remain below the 2.0% target rate through the end of 2016.

The US Dollar initially rallied on the news in the run up to the Fed minutes release but soon pared gains on profit taking. The short squeeze across the board and especially the Euro saw the EURUSD gain nearly 0.17% yesterday closing with a small spinning bottom candlestick pattern and the single currency managed to rally into today’s trading posting a session high to 1.0717 before easing back.

The markets at large took the minutes in their stride with the US equity markets also closing with gains after the release yesterday. Broadly, the FOMC meeting minutes did not quite confirm the rate hike in December which is one of the reasons the US Dollar Index has eased back from the highs.

BoJ stands pat on policy

The Bank of Japan met for its monetary policy review earlier today and decided to leave the annual monetary base, unchanged at 80 trillion Yen. The move comes despite the Japanese economy slipping into recession, posting an economic contraction of -0.80% as of the data released earlier this week. BoJ kept its economic assessment unchanged at the meeting.

USDJPY tested the highs of 123.75 before giving back to close below the 123.6 level of support/resistance.

Looking forward, the economic data for today will include the UK retail sales where the numbers are expected to slow after increasing 1.9% last month with sales surging on account of the UK Rugby World Cup. The British Pound was well supported on BoE’s Broadbent’s comments that the markets were taking the BoE’s inflation forecasts a bit too seriously. The US session will see the release of the weekly unemployment claims and the Philly Fed manufacturing index, both of which are likely to set the tone for the Greenback in the near term.