Dollar tumbles on dovish Fed minutes
The greenback tanked against yen and euro as the minutes of the last FOMC meeting stated many policymakers thought further labor market improvement is needed before slowing asset purchases.
Versus the Japanese yen, although the greenback rebounded from Tuesday's low at 100.77 to 101.22 in Australia, the pair fell sharply to 100.29 in Asia on active cross buying of yen versus other currencies and dropped further to 99.79 in European morning due to 'yen-supportive' comments from Japan deputy Economic Minister Nishimura before staging a recovery to 100.50.
Japan deputy Economic Minister Nishimura said 'will make every effort to promote economic growth; will make every effort to implement growth strategy; BOJ should communicate with market to stabilize rates; LDP election victory will lead to stable Japan government.'
Later, despite dollar's retreat to 100.03 after the release of lower-than-expected U.S. wholesale inventories (-0.5% versus 0.3%), the pair briefly rebounded to 100.63 in New York afternoon after the release of Fed minutes, however, price met renewed selling there and tumbled to a low of 99.40 in late New York afternoon as traders digested the dovish Fed minutes.
Fed minutes stated 'many members in Jun meeting felt further labor market improvement needed before slowing asset purchases; some also wanted to see more evidence that projected acceleration in growth would occur before tapering; several members judged a reduction in asset purchase would soon be warranted; members continue to anticipate current very low level of funds rate likely appropriate for considerable period after end of asset purchase; Fed officials felt Bernanke should describe in press conference likely path for asset purchases in coming quarters; two members thought Fed should begin curtailing purchases soon to prevent negative effects from exceeding benefits; one member wanted inflation moving back to target before tapering; a couple of others also worried downside risks to inflation had increased; many members wanted to emphasize distinction between decisions about slowing bond buying and future rate hikes.'
Despite euro's brief fall to 1.2765 in Asian morning, price rose to 1.2836 in European morning on cross buying of euro versus sterling and gained further to 1.2862 in New York morning on dollar's broad-based weakness after the release of U.S. wholesale inventories. Later. euro rallied to a high of 1.2985 in late U.S. afternoon on dollar's broad-based weakness.
The British pound edged higher in tandem with euro from Asian low at 1.4845 to 1.4923 in European morning and rose to 1.4946 in New York morning on dollar's broad-based weakness. Later, although the pair climbed to 1.4995 in U.S. afternoon after the release of U.S Fed minutes, price fell sharply to 1.4912 on dollar's strength.
In other news, ECB's Noyer said 'monetary policy will remain accommodative for as long as necessary; ECB sees downside risks on economic outlook for euro area; there is no alternative to adjustment, reforms must be vigorously pursued.' ECB's Coeure said 'euro zone still engulfed in severe crisis; we will keep an open mind and stand ready to react to new developments; "substitute liquidity" generated during crisis episodes is not inflationary; ECB stands ready to intervene through OMT bond programme in unlimited quantities; publicly supplied liquidity can create distortions in economy.'
Data to be released on Thursday:
New Zealand business NZ PMI, Australia employment change, unemployment rate, Japan machinery orders, BoJ interest rate decision, France HICP, CPI, Canada new house price index, U.S. import price index, jobless claim, Fed budget.