Article / 18 August 2016 at 7:00 GMT

Morning Markets: Ponderous Fed scuppers dollar

Managing editor, / Saxo Bank



  • UK July Retail Sales                                                   (0830 GMT)
  • Euro area July Consumer Price Index                        (0900 GMT)
  • US Federal Reserve’s Dudley speaks                        (1405 GMT)

The dollar's all-too-brief rally this week is already at an end after the US Federal Reserve minutes for its July meeting showed board members remain divided over when to initiate the next rate cut. The revelation undermined the impact of comments earlier this week from committee member William Dudley that had raised the prospect of a September hike.

The Bloomberg Dollar Spot Index hit a three-month low after the odds for a hike before year-end slipped below 50% and USDJPY sank to the 99.70 zone. EURUSD also spiked in the aftermath of the release and continues to froth at the 1.1320 area while GBPUSD pushed to within touching distance of 1.31 before retreating to the 1.3050 zone.

The minutes may have indicated that the Fed as a whole was upbeat on the direction of the US economy and December still looks like the most likely date for a move on rates, but the dovish tone indicates the status quo, for now, will remain in place.

New York Fed chief Dudley speaks again today and his reaction will no doubt receive intense coverage although we may have to wait until Fed chair Janet Yellen speaks at Jackson Hole later this month to see what happens to the ailing greenback.

Equities predictably rose on the back of the minutes release with Hang Seng rallying strongly, but Nikkei was subdued as the strengthening yen and some poor trade data scuppered the export-led index for a 1.5% fall. Expect European indices to catch the positive wave this morning.

Gold's rise came entirely as a consequence of dollar weakness while global oil benchmarks Brent and WTI crude were advancing in the hour prior to the European open underpinned by a draw on inventory stocks unveiled by the weekly EIA report Wednesday. Brent was within striking distance once again of the magic $50/barrel figure.

With European Central Bank minutes for its July meeting also to be released later today, markets will look for further support to the prevailing view that banks will continue to remain accommodative for the near future. There does not seem much reason to expect otherwise.

Market signals

Asian session

  • Australia's unemployment rate fell to 5.7% as part-time jobs rose
  • FOMC minutes show board divided over timing of next rate rise
  • Asian stocks outside Japan rose after Federal Reserve meeting minutes
  • Oil held its advance after the longest run of gains in more than a year
  • West Texas Intermediate for September delivery was at $46.74/barrel
  • Brent for October settlement was 19 cents lower at $49.66/barrel
  • The Nikkei was down 0.96% at 0510 GMT
  • The Hang Seng was up 358 points, 1.6% at 0515 GMT
  • The Shanghai Composite was up 987 points or 0.32% at 0515 GMT
  • The Mumbai Sensex was up 0.66% at 0516 GMT
  •  The ASX/S&P 200 was down 28 points, 0.5% at 0544 GMT

Forex ahead

  • The Aussie rose 0.4% to 0.77 on strong employment data
  • JPY surged below 100 to dollar after Fed showed officials divided over rate hike moves
  • Dollar weakness likely to persist but Dudley speech may nudge the needle back
  • GBP could squeeze up if UK retail sales positive while dollar weakens
  • EURUSD could be heading towards break of 1.14 after post-Brexit stasis

From the Floor

Waiting game. “We await Jackson Hole and Yellen as the last chance to save the dollar,” says Hardy.

Hoist the sails. "The dollar weakness has put commodities on track for its biggest week in seven weeks", says Hansen

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Today's UK retail sales data will provide some of the first evidence on whether the Brexit vote has hit the economy, writes Juhani Huopainen.

Split on rates
The FOMC meeting shows the Fed has decided to keep its options open on the timing of the next interest rate increase, writes the Saxo APAC Sales Trading team.

Bond blow
A shortage of US dollars is reducing the attractiveness of the US bond market for offshore investors, making it more vulnerable if the Fed was to resume raising rates, says Max McKegg.

Clinton's red card
Hillary Clinton may be leading the polls, but Michael McKenna says that a Clinton-led presidency would be a predictable 'status quo' biased tenure and that wouldn't be a good thing.

Connect the dots
China's surprise announcement that it is to open the Hong Kong-Shenzhen Stock Connect is great news for China and traders. Steen Jakobsen explains why.

The gleaming metropolis of Shenzhen should expect a lot more visitors through
its international airport once the Stock Connect to Hong Kong is open. Photo: iStock

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