Bill Dudley of the New York Fed remains data dependent or doesn’t deviate from dovish and most importantly does not mention June. However, in follow up comments Dudley does say that June is a live meeting, that markets were too pessimistic and he also mentions July more than once.
So, after an initial slide for the USD, the greenback returns to were it was. Dudley did not really join the hawkish camp, but he is certainly warming up – basically opting for middle ground. We will probably have to wait for Yellen and of course, for more data.
So, with no follow up to yesterday’s hawkish minutes, the US dollar slides.
- EUR/USD is bouncing back above the previous support line of 1.1225. In the follow it slides back to 1.1205.
- GBP/USD re-settles above 1.46 but the battle is on.
- USD/JPY extends its fall to 109.70, getting closer to support at 109.50 and later bounces back/
- USD/CAD cools down to 1.3112.
- AUD/USD rises to 0.7220 after dipping under 0.72 earlier.
- NZD/USD is at 0.6760, showing the dip under 0.6720 was a fakeout.
Note: title corrected from the initial one.
Dovish Dudley was closely watched: he is the President of the New York Fed, No. 3 in terms of hierarchy and very close to Chair Yellen’s approach: dovish. The question was: will he remain dovish and take the hot air out of the dollar rally? Or echo the Fed minutes and confirm a hawkish shift within the top brass of the Federal Reserve.
Vice Chair Stanley Fischer, No. 2 at the Fed, expressed his desire for faster economic growth in addition to a solid jobs market and stable inflation, things that are already in play. His comments do not directly touch monetary policy, or more specifically, the June decision. The word “June” appeared 6 times in the FOMC meeting minutes.
The Fed minutes shifted expectations for the June decision: from an outside chance to a real chance, or at least a real option of a hike in July, after the Brexit vote in the UK. The Fed said that if economic conditions are OK, they are ready to raise rates in June. This sent the dollar rising across the board, with new cycle lows in EUR/USD and AUD/USD as well as new cycle highs in USD/CAD.
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