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Dollar index holds 3-week high ahead of Fed minutes

It’s back to business as usual. The Federal Reserve and its thinking about the pace of the US rate-tightening cycle is back at the centre of attention, as the stand-off between Washington and North Korea continues to cool.

The dollar index is holding around a three-week high at 93.912 ahead of the release of minutes from the Federal Reserve’s last meeting, due later on Wednesday.

The detail of the discussion on the Federal Open Market Committee will offer an insight into the US central bank’s thinking on the pace of its monetary policy tightening cycle. Investors will be looking for signs of intentions for reduction or re-investment of the proceeds from its economic stimulus spending. The prospects of another rate rise before the year-end will also be closely measured.

The three-week high for the dollar index, which tracks the greenback against six other currencies, was reached on Tuesday. It came after news of the biggest rise in US retail sales in seven months, forecast-beating data which helped shift market attention back to the economy and away from geopolitical tensions.

Looking toward tonight’s Fed minutes Andrew Hollenhorst at Citi says:

Inflation is likely to receive the most attention in the July Federal Reserve minutes, but it’s unclear the stale discussion will impart much new information.

Potentially more interesting would be an indication of what — if anything — can delay the widely expected September announcement of tapering of Fed reinvestments.

Haven assets are continuing to cool.

Japan’s yen is 0.1 per cent weaker ¥110.76 per dollar while fellow haven currency, the Swiss franc, is steady at SFr0.9729 per dollar. Gold is down 0.1 per cent at $1,269.71 per ounce after falling 0.8 per cent over the previous session.

The pound‘s grinding descent is continuing, sending it to its weakest level against the euro since the flash crash in October, reaching £0.9142 against the shared currency. With some caveats about the extended lows reached only briefly during last October’s flash crash, that represents a 7-year nadir for sterling against its nearest neighbour at regularly traded levels.

Sterling is also hovering at a five-week low against the dollar at $1.2860 after falling 0.7 per cent on Tuesday on weaker-than-expected UK inflation data.

The euro is down a little at $1.1710 despite a sparkling run of European economic growth data.

The Euro Stoxx 600 is up 0.7 per cent, with the Xetra Dax 30 rising 0.8 per cent and the FTSE 100 also up 0.8 per cent in London.

Hong Kong’s Hang Seng is up 0.9 per cent. South Korea’s Kospi was up 0.6 per cent after a public holiday on Tuesday.

Japan’s Topix is flat, with gains for industrial stocks offsetting losses for consumer companies.

The S&P 500 was 0.1 per cent lower at the close of trade in New York.

Oil prices are firmer, with Brent crude rising 0.5 per cent to $51.03 a barrel. US benchmark West Texas Intermediate is 0.3 per cent higher at $47.71.