USD Rallies after FOMC Minutes, ahead of Jackson Hole

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The previously strong US dollar got an added boost following the release of the FOMC minutes yesterday afternoon. Fed officials were recorded as saying job gains might bring a rate rise sooner than anticipated as financial system vulnerabilities were “well contained”. These comments sparked another dollar rally ahead of two hotly anticipated speeches at this week’s Jackson Hole Economic Conference. This afternoon we will get a chance to hear Fed Chairman Janet Yellen speak and she is followed up by ECB Chairman Mario Draghi on Friday.

It was fairly quiet overnight as Asian and European markets digested those comments while taking a look at another round of mostly second and third tier economic data. First in China, the HSBC Manufacturing PMI for August was released and missed expectations of 51.5 coming in at 50.3 – any number above 50 indicates expansion. Europe also saw a number of Manufacturing PMI releases as Germany and France both surprised to the topside with readings of 52 and 46.5, respectively. Unfortunately, those numbers were not enough to pick up the slumping euro as the continent continues to muddle along in mediocrity and stagnation. It was the FOMC minutes that paced the market though as stocks on both continents remain a sea of green on the upbeat comments from Ms. Yellen and her merry band.

This morning we will get a bit more US housing data with July Existing Home Sales at 10am EST. These numbers follow a string of very strong US housing numbers to be released, most recently U.S. housing starts for July which surged 15.7% snapping two months of declines. It will be interesting to see the market’s reaction should these numbers miss as the market has to be searching for any reason to give back some of these most recent dollar gains. Tomorrow, it is fairly quiet on the data front ahead of Mr. Draghi’s address with only Canadian inflation and retail sales to be released at 8:30am EST. The Canadian dollar has been one of the biggest losers in the face of the recent dollar strength as the interest rate tectonic plates continue to shift for both countries.

Finally, geopolitical tensions rage on as airstrikes in Israel have picked up after truce talk broke down on Tuesday. Overnight, an Israeli air strike killed three senior military commanders of the Hamas group after leaders in Gaza declared it would not be safe for commercial flights to Israel. In Iraq, the US contemplates further air strikes of their own on the terror group ISIS after the beheading of US journalist James Foley. And in Russia, stocks rose for a 10th day as investors speculate a meeting next week between Mr. Putin and his Ukrainian counterpart will reduce tension in the region. It is important to keep note of these developments as at any point they could pull the wool over the eyes of a very happy Summer market.

Further reading:

US jobless claims falls to 298K

EUR/USD – Steady on Mixed Euro PMIs

Get the 5 most predictable currency pairs

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