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Forex markets today started out on the backfoot, with the yen starting and ending as the top performer in the G10’s, (TRY stood out in the EM’s, higher vs the dollar by +387), the euro dragged its heels after correcting from YTD low down at 1.1675.

The NY session started out as a bit of a bloodbath in Europe, with EZ PMIs falling short of what could be considered by markets as a catalyst for the ECB to get a move on, while UK CPI also missed expectations, pushing prospects of a BoE hike further over the horizon. This all came against a backdrop of political uncertainty as the Italian coalition parties sought to agree on a prime minister – however, behind those scenes, Trump’s dissatisfaction with how trade talks with China have been going pins markets down as well.  

Trade was tight ahead of the release of the FOMC minutes, with majors vs the greenback, such as the euro and pound, consolidating in close distances from fresh YTD lows. At first take, there did not seem to be any significant shifts from already divulged outlook from the FOMC, but at closer inspection, there was a dovish tilt, as analysts at Westpac pointed out:

“In the FOMC minutes, a few lines stood out: (1) A strong hint re the 13 June meeting, “it would likely soon be appropriate for the Committee to take another step in removing policy accommodation”; (2) There seems to be a lack of urgency to tighten more aggressively given that “modestly above 2 percent would be consistent with the committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations,” and “many” saw only “muted” wage pressure; while a “few” noted neutral will be in sight…before too long,” which would require rewording the existing guidance that policy is accommodative.”

On the back of this, risk bounced late in the day and recoveries were underway vs the greenback and the benchmark indexes rallied. the DXY bled within the 93.5140-94.1880 range. As far as yields go, the US 10yr treasury yield dropped from 3.05% to 2.99% and 2yr yields fell from 2.59% to 2.53% after the FOMC minutes, (2yr’s are usually sensitive to FOMC minutes).  All in all, a June hike still seems to be on the cards and September is an additional possibility.

Currency summary:

Euro was all one-way traffic until the moments before the FOMC minutes. EUR/USD recovered from the YTD lows at 1.1675 after opening NY around 1.1715. the slide was extending throughout the US morning until a 1.1709 bounce on the minutes and extending to meeting the opening level.   GBP/USD made a fresh low as well to 1.3347 due to the softer than expected UK CPI print that arrived as 2.4% vs 2.5% forecasted. For NY, the pair recovered to 1.3359. for the cross, EUR/GBP ended NY 0.8765, -0.14% and within the 0.8753/88 range. The yen was taking on Sydney bears with a test down at 109.56 vs the dollar before bargain hunters picked up USD/JPY back to 110.10/36. The fairly dovish minutes anchored the pair here and bears pilled in at 110.05 down to a NY session low of 109.93.   The Aussie dropped 0.7580 to 0.7523 in London trade ahead of the FOMC minutes where commodities and higher beta were somewhat relieved of pressures. AUD/USD got off from 0.7535 to 0.7565 the high and closing near there into Asia.  

Key notes from US session:

  • Wall Street stocks break higher on lukewarm FOMC’s minutes and easing geopolitical picture
  • Funda-FX wrap: never mind the FOMC minutes, UK/EZ data and Trump caused the volatility