Hawkish Fed Minutes, Upbeat Economic Data Stops U.S. Dollar Price Slide

Sellers picked up where they left off at the end of 2017, driving the U.S. Dollar lower against a basket of major currencies on concerns over the number of Fed interest rate hikes in 2018. Bearish traders feel that tame inflation and the possibility of stagnant growth may lead the central bank to cut the number of planned rate hikes from three to two. Sellers also expressed doubts over the impact of the new tax reform plan on U.S. economic growth.

March U.S. Dollar Index futures settled at 91.673, down 0.153 or -0.17%.

The index hits its low for the week on January 2 at 91.47. It consolidated the rest of the week, influenced by upbeat economic data and the surprisingly hawkish U.S. Federal Reserve minutes from its December Federal Open Market Committee meeting.

On January 3, ISM Manufacturing PMI beat the 58.1 forecast with a read of 59.7. On January 4, the AD{ Non-Farm Employment Change report showed the private sector of the economy added 250K new jobs in December. Weekly Unemployment Claims, however, came in higher than expectations at 250K.

On January 5, the U.S. Labor Department reported that the U.S. economy added a disappointing 148,000 jobs in December while the unemployment rate held at 4.1 percent. Economists were looking for non-farm payrolls to grow by 190,000. The total was well below the November pace of 252,000, which was revised up from the initially reported 228,000.

The bright spot in the U.S. December employment report was the rise in wage growth. Average hourly earnings rose 9 cents, or 0.3 percent, in December after gaining 0.1 percent in the prior month. This news lifted the annual increase in wages to 2.5 percent from 2.4 percent in November.

In other news released on Friday, ISM Non-Manufacturing PMI came in below expectations at 55.9.

The Fed minutes revealed the usual divided central bank members, but they also tipped the scales toward the more hawkish FOMC members.

The Fed raised rates a quarter-point at its December meeting, with most FOMC officials backing the continued path of gradual rate hikes. According to the minutes, some Fed members were concerned about low inflation. Others thought the tight labor market and tax hikes could help boost inflation.

Forex Markets

The reaction in the Forex minutes was mixed due to a variance in the fundamentals. The Euro, which essentially controls the direction of the dollar index, rose last week as investors continued to bet the European Central Bank would ease on stimulus and perhaps raise rates by the end of the year.

The Australian, New Zealand and Canadian Dollars were supported last week by rising commodity prices such as metals and crude oil. The Japanese Yen was pressured last week because rising U.S. Treasury yields helped widen the spread between U.S. Government Bonds and Japanese Government Bonds, making the U.S. Dollar a more attractive investment.

The U.S. dominated the news last week. The only other major economic reports last week were the Australian Trade Balance and the Euro Zone CPI Flash Estimate.

In Australia, the Trade Balance came in worse than expected at -0.63 billion. Traders were looking for a surplus of 0.55 billion. The previous data was revised to -.30 billion.

In the Euro Zone, the annual CPI Flash estimate came in at 1.4%. This was below the 1.5% previous report, but in line with expectations.