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U.S. dollar undermined by dovish Federal Reserve message

 
 

Yesterday's release of the minutes from the July 25-26 Federal Reserve monetary policy meeting reveals a lack of policymaker agreement over the timing of interest rate increases.

Some members of the Federal Open Market Committee (FOMC) remain wary of weak inflation and urge that the Fed must be patient; other members believe that waiting too long comes with great risk. While there is consensus regarding the need to begin reducing the $4.2 trillion bond balance sheet, parts of the FOMC appear reluctant to specify a starting date. 

The U.S. dollar fell following the release, trading around 93.50 against a basket of other leading currencies on Thursday, Aug 17. The trading community has recently witnessed the USD struggle following the recent political turmoil in Washington. Over the past few days, president Donald Trump lost significant support following his reluctance to condemn white supremacy violence following the Charlottesville attack on Aug 12. Additionally, while some sectors have progressed since Mr. Trump was installed into the White House, less has happened when it comes to his campaign promises of tax reforms and large-scale infrastructure investments, adding to concerns over his ability to implement policies and make the economy grow. 

The recently strong euro rose this morning, trading at $1.1763 and approaching that two and a half year high of $1.190 that was met earlier in August 2017. 

Odds are still up that the European Central Bank will begin reducing its policy stimulus, although it remains unknown when. While investors show support for the single market currency, market expectations are that the American central bank will leave its benchmark rate untouched for now until it has been sufficiently established that the recent inflation trend is not permanent. Currently, inflation lies within the range of 1% to 1.25%, below the Fed's 2% objective. 

As autumn approaches, the market awaits the Federal Reserve's annual Jackson Hole conference, where the European Central Bank leader Mario Draghi is scheduled to speak. It will be the first time in three years that Mr. Draghi attends the high-profile symposium. This week, sources close to the ECB chief disclosed that Mr. Draghi will not deliver a new monetary policy direction at that point; instead he will attend to focus on this year's Jackson Hole theme: fostering a dynamic global economy. 

The trading community also awaits the next Federal Reserve meeting, scheduled for Sept. 19-20. 

To read EverythingFX's just-released coverage of the Fed Minutes release and learn more about the central bank's assessment of the current state of the American economy, click here