The dollar came under renewed pressure after the FOMC minutes revealed concern about the impact on US growth from the slowdown in China and the turbulence in financial markets. Most analysts now think that it is unlikely the Fed will raise rates in 2015.
The FOMC anticipate that the recent global developments pose further downside risks to inflation in the near term compared with their previous forecast. The slowdown in China and the potential spillover to other economies could depress US exports, and the further decline in commodity prices has led to falls in energy and import prices.
However, the majority of the FOMC still think it would be appropriate to begin raising the target range for the federal funds rate in 2015. This puts the December meeting in focus but markets sense that the Fed is hesitant to act before the risks from the global developments and decline in commodity prices have dissipated.
The dollar fell sharply after the minutes were released but managed to post a quick rebound. The greenback was back above the 120 handle against the yen in late Asian session as it climbed to 120.13 yen.
The euro was boosted by stronger-than-expected French industrial production figures. Industrial production jumped by 1.6% month-on-month in August, against estimates of a 0.6% rise. The single currency jumped above 1.13 dollars before falling back in late US session but it was back above that level in today’s Asian session, rising to 1.1301 dollars.
The pound, which had hit a low of 1.5260 dollars after yesterday’s dovish Bank of England minutes, surged back above the 1.53 handle, extending its gain to 1.5369 dollars on Friday.
Commodity currencies were the big winners from the Fed’s minutes as commodity prices, including crude oil rose as investors pushed back the timing of a US rate hike to 2016. US oil futures were 1.6% higher on Friday at $50.23.
The Australian and New Zealand dollars rallied to two-week highs. The aussie was up at 0.7292 against the dollar, while the kiwi rose to 0.6694. The Canadian dollar also clawed back some of its recent losses as the dollar fell to 1.2974 against the loonie.
Coming up later today, UK trade balance and Canadian unemployment figures will be the main data of the day with the US calendar looking relatively quiet.