• The dollar fell on Wednesday to its lowest level since October against a basket of major currencies, marking its worst one-day performance in five months.
The release of minutes from the Federal Reserve’s most recent policy meeting, weak U.S. data and technical trading aligned to send the dollar tumbling against both safe-haven and risky currencies.
The dollar plumbed its lows of the day after the release of the Fed’s November meeting minutes showed policymakers were concerned about inflation, which has remained subdued.
Against a basket of currencies, the dollar was huddled at 93.277 .DXY, having shed 0.75 percent overnight.
The euro was enjoying the view at $1.1817 EUR= after climbing from $1.1731 on Wednesday. The dollar also crumbled to 111.23 yen JPY=, its lowest since Sept. 20. That was the largest single-day fall against the yen since May.
The Fed’s dovish turn helped break the inexorable sell off in short-term U.S. Treasuries, with yields on the two-year note US2YT=TWEB falling almost five basis points to 1.727 percent. That was the sharpest daily drop since early September.
• “The US dollar was already staggering into Thanksgiving when the FOMC minutes gave it another shove,” said Sean Callow, a senior currency analyst at Westpac. “The FOMC seems to be increasingly uneasy about ”ongoing softness“ in inflation.”
“Investors can be forgiven for wondering why they should buy more U.S. dollars if we are heading into a ”Powell pause“ in the first half of 2018,” he added, referring to newly appointed Fed Chair Jerome Powell.
• Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting but also started to worry that financial market prices are getting out of hand and posing a danger to the economy.
Many Federal Reserve policymakers expect that interest rates will have to be raised in the “near term,” according to the minutes of the U.S. central bank’s last policy meeting released on Wednesday.
The readout from the Oct. 31-Nov. 1 meeting, at which the Fed kept rates unchanged, also showed policymakers generally agreed the economy was poised for strong growth. Several Fed officials also saw improved chances that the U.S. Congress would pass significant tax cuts that would boost business investment.
While some policymakers said they still needed to see more data before deciding the timing of a rate hike, many of the officials said the jobless rate appeared to be too low for inflation to remain at its current weak level.
“Participants expected solid growth in consumer spending in the near term, supported by ongoing strength in the labor market,” the Fed said in the minutes. “Many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term.”
The rout came after minutes of the Fed’s last meeting showed “many participants” were concerned inflation would stay below the bank’s 2 percent target for longer than expected.
That echoed comments from Fed Chair Janet Yellen that she was uncertain about the outlook for inflation and led markets to pare back pricing for more hikes next year.
While a move in December to between 1.25 and 1.5 percent is still almost fully priced in, Fed fund futures <0#FF:> rallied to show rates at just 1.75 percent by the end of next year.
• The number of Americans filing for unemployment benefits fell last week after two straight weekly increases, pointing to continued steady job growth after recent hurricane-related disruptions.
Initial claims for state unemployment benefits declined 13,000 to a seasonally adjusted 239,000 for the week ended Nov. 18, the Labor Department said on Wednesday, reversing the prior week’s increase.
Last week marked the 142nd straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was smaller.
• The European Central Bank will reaffirm its policy stance at its December meeting, and rate-setters hope to put off debate on new moves until well into next year, five sources with direct knowledge of the discussion told Reuters.
“The first rate hike is now priced in for late 2019, and I‘m comfortable with that,” one of the sources said. “The October decision was taken very well by markets.”
• Britain slashed its official forecasts for economic growth and expects to borrow sharply more going into the next decade, finance minister Philip Hammond said on Wednesday as he delivered a budget statement in parliament.
The country’s budget forecasters now expect gross domestic product will grow by 1.5 percent in 2017, compared with a forecast of 2.0 percent made in March, reflecting a slowdown this year as last year’s Brexit vote weighed on the economy.
The Office for Budget Responsibility saw growth in 2018 at 1.4 percent, lower than its previous forecast of 1.6 percent, Hammond told parliament.
• Britain wants Zimbabwe to rejoin the international community following the resignation of Robert Mugabe, Prime Minister Theresa May said on Wednesday.
• Zimbabwe’s former vice president Emmerson Mnangagwa will be sworn in as president on Friday following the resignation of Robert Mugabe, the parliament speaker said on Wednesday.
Zimbabwe’s new leader Emmerson Mnangagwa told a cheering crowd in Harare on Wednesday that the country was entering a new stage of democracy following Robert Mugabe’s removal as president after nearly four decades in power.
• Oil settled at a two-year high Wednesday after the shutdown of one of the largest crude pipelines from Canada cut supply to the United States.
U.S. West Texas Intermediate crude (WTI) futures settled up $1.19, or 2 percent, at $58.02 per barrel, the highest since July 2015, on concerns over reduced supplies on the Keystone pipeline and after the American Petroleum Institute (API) late Tuesday reported a 6.4 million-barrel crude drawdown for last week. [API/S]
Brent crude settled up 75 cents, or 1.2 percent, at $63.32 a barrel.
Reference: Reuters, CNBC
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