Dollar Holds Losses as Fed Minutes Fail to Surprise – Reuters

By Karen Brettell

NEW YORK (Reuters) – The U.S. dollar remained lower on Wednesday following the release of the minutes from the Federal Reserve’s December meeting, which did not provide new insights regarding the anticipated interest rate hike in February.

Last month, the Fed raised rates by 50 basis points, and officials agreed that a slower pace of increases would help manage inflation while minimizing the risks posed to economic growth. The minutes emphasized that the shift to smaller rate hikes should not be interpreted as a reduction in the Fed’s commitment to achieving its 2% inflation target.

“It didn’t offer significant new information,” remarked Brian Daingerfield, head of G10 FX strategy at NatWest Markets in Stamford, Connecticut. He noted that the Fed’s hawkish stance was already reflected in the revised median rate expectations for 2023 discussed in December’s meeting, as well as in the press conference and related forecasts.

The minutes did little to alter the market’s expectations for the upcoming February meeting, with futures traders suggesting a 67% chance that the Federal Reserve will continue to slow rate increases to 25 basis points. This follows December’s hike of 50 basis points, after a series of four consecutive increases of 75 basis points.

“There were no obvious hints that the Fed is inclined to slow further or maintain the 50 basis point move structure instituted in December, which is likely why we haven’t seen a significant market response,” Daingerfield stated.

The dollar index registered a decline of 0.47% to 104.22 after hitting a two-week peak of 104.86 the previous day.

The robust jobs market is expected to provide the Fed with the flexibility needed to persist with rate hikes in its effort to reduce inflationary pressures. The upcoming employment report for December, set to be released on Friday, is anticipated to reveal an addition of around 200,000 jobs, paired with a predicted 0.4% increase in average hourly earnings for an annual growth rate of 5%.

On Wednesday, additional data indicated that U.S. job openings in November had fallen less than anticipated, reflecting the tight labor market conditions.

In a positive development for inflation control, a survey from the Institute for Supply Management (ISM) indicated that prices paid by manufacturers for inputs decreased significantly in December, reaching the lowest levels since February 2016, excluding the sharp drop at the beginning of the COVID-19 pandemic.

Increased optimism regarding further stimulus in China, following its reopening from COVID-19 restrictions, buoyed risk sentiment earlier on Wednesday, resulting in a reduced demand for the U.S. dollar.

The Australian dollar surged by 1.66% to $0.6839 after China permitted several state-backed utilities and a leading steelmaker to resume coal imports from Australia, marking the first such approvals since 2020 when Beijing imposed an unofficial ban on coal trade with Australia.

The euro also rose on the news that inflation might have peaked in the region, as data revealed a greater-than-expected decrease in French consumer price pressures for December. This development raised expectations that the European Central Bank might adopt a less aggressive monetary policy, supporting further economic strength. The euro was last up 0.54% at $1.0605.

Currency bid prices at 3:00 PM (2000 GMT)

• Dollar index: 104.2200
• Euro/Dollar: $1.0605
• Dollar/Yen: 132.6150
• Euro/Yen: 140.64
• Dollar/Swiss: 0.9294
• Sterling/Dollar: $1.2057
• Dollar/Canadian: 1.3484
• Aussie/Dollar: $0.6839
• Euro/Swiss: 0.9855
• Euro/Sterling: 0.8793
• NZ Dollar: $0.6299
• Dollar/Norway: 10.0885
• Euro/Norway: 10.7033
• Dollar/Sweden: 10.5021
• Euro/Sweden: 11.1411