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The FOMC Meeting Minutes showed a healthy discussion about reducing the pace of bond buying: QE Tapering. Almost all members supported the guidance presented: that tapering could happen later in the year, data dependent, and that the QE program could stop in mid 2014. There is a warning about inflation: low inflation could pose risks.

The dollar managed to recover some of the losses seen yesterday towards the release. After the publication, the dollar is stronger.

Basically, the main message of the minutes remains: the decision is data dependent, and while a Septaper is a close call, the critical September 18th decision is getting closer, and there is a growing notion that the Fed will begin tapering.

Currency reaction

  • EUR/USD is about 30 pips lower, at 1.3340. The euro suffered from worries about Greece.
  • GBP/USD zig-zagged and jumped to high of 1.5715 before falling to 1.5670. The pound remains one of the stronger currencies.
  • USD/JPY jumped higher, but didn’t break above 98. It currently trades at 97.83. Worries about Fukishima strengthened the yen.
  • AUD/USD breaks below 0.90 – it hardly managed to hold on to this level before the publication, and the release triggered a downfall. The low so far is 0.8974. The Aussie awaits important Chinese data.
  • USD/CAD is higher at 1.0463. Issues with emerging markets, especially in India and somewhat tapering related, weigh on the price of oil and have already weakened the Canadian dollar.

Background

The recent FOMC statement did not contain any changes in policy and was not accompanied with a press conference. The big question is: will the Fed announce a tapering of its bond buying in the September meeting? The minutes were expected to provide a question about the potential “Septaper”.

It often takes time for the markets to analyze the text, and build a narrative. The echoes are usually heard during the Asian and European sessions as well. We could see the dollar weaken, re-strengthen, re-weaken, etc.

Earlier, existing home sales surprised with a jump of 6.5% to 5.39 million (annualized). This not only exceeded expectations, but was also the best figure in over 3 years.

Opinion:  Septaper is a close call both for markets and the Fed