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Dollar rebounds after Fed minutes coy on policy strategy

Published 08/19/2020, 08:48 PM
Updated 08/19/2020, 08:50 PM
© Reuters. A U.S. Dollar banknote

By Tom Westbrook

SINGAPORE (Reuters) - The dollar clung to overnight gains on Thursday, after minutes from last month's U.S. Federal Reserve meeting gave few clues about whether an even more dovish shift in its policy framework is possible in the autumn, disappointing some dollar bears.

A heavily shorted greenback put on its biggest one-day surge since March after the release, hitting 93.159 against a basket of currencies (=USD), about 1% above Tuesday's two-year trough. The move wiped out earlier gains made by other majors.

Speculation has been rife the Fed will adopt an average inflation target, and seek to push inflation above 2% to make up for years it has run below, as part of a broader policy review.

But the minutes were vague on the issue and merely said "a number" of Fed members thought it would be helpful to make a revised statement on its policy strategy at some point, without providing details or timing.

After hitting an 18-month high of $0.7275 before the meeting, the Australian dollar

The euro - the most stretched of all recent gainers on the greenback - fell 0.7% overnight to trade back below $1.19. It last sat at $1.1841 (EUR=EBS). The pound

"Traders were hoping (the minutes) would cement a clear consensus in the Fed's ranks for a series of key changes in the 18 September meeting," said broker Pepperstone's head of research, Chris Weston.

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"(But) there seems little consensus in the Fed collective to adopt an inflation-targeting regime, which is what so many have positioned for."

The minutes also sounded pretty gloomy about the U.S. economy and skeptical about capping government bond yields as a means of encouraging recovery and investment - leading to a modest sell off in Treasuries.

The dollar's rebound comes after short bets against the world's reserve currency had risen to their largest since 2011 last week and long bets on the euro were at a record high, which has some investors feeling it could be short-lived blip. <0#NETUSDFX=>

"All that was needed to push up the dollar was a catalyst; the minutes provided the catalyst," said Commonwealth Bank of Australia (OTC:CMWAY) currency analyst Joe Capurso.

"Nevertheless, we still expect the dollar to track lower. The rest of the world economy, led by China, is recovering...we consider the Aussie's fall overnight as a short term pothole along a road that trends higher."

For the Fed, the focus now shifts to whether more will be revealed at the Aug. 27-28 virtual Jackson Hole symposium or at September's meeting.

On Thursday investors expect China to keep its benchmark lending rate steady when it is fixed at 0130 GMT.

Later in the day, U.S. weekly jobless claims are expected to drop even further below one million, and markets are warily awaiting the Philadelphia Fed business index at 1230 GMT after a disappointing reading from New York earlier in the week.

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Latest comments

Wall streets manipulative greed will not only wipe up many people's account in the end, but the USA as a whole; it is sad to see such a young country seemingly like the greatest ever heading into ruins, as will be noticed when reality hits the fan in a few years, mean while, all is bliss and dandy. Prophecy does state there will be one more rise of the roman empire (European Union) and our country will head into starvation while major things start occurring with the environment, weather and earthquakes, etc. So I suppose there is no stopping what's ahead. Overall, people don't change and history repeats.
LOL. Economic data and deductive reason tells you the obvious about the economy. In terms of tools? There is none, nothing left as evident with Europe and Japan. You have a swift sell off and people wanna find a reason to placate their losses? You think the US is bad? Take a look at the Eurozone.
The dollar isn't done going lower.
Just needed a little reminder of its existence..
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