The FOMC Dovish Minutes Send The US Dollar Tumbling

The Federal Reserve minutes took the markets a bit by surprise on Wednesday afternoon. The members were a bit more dovish than expected sending the US dollar down and allowing gold to climb.  The US dollar is trading at 96.38 as gold climbed to 1137.60 adding almost $10 on Thursday morning as traders interpreted the Fed minutes to mean that a rate increase would not come until December at the earliest.

Fears about China’s economy and falling oil prices kept world equity indexes under pressure on Wednesday, while the dollar lost ground after minutes from the U.S. Federal Reserve’s July meeting left uncertainty over the timing of an interest rate hike.

In a choppy day on Wall Street, major U.S. stock indexes briefly erased their losses and the dollar weakened further after minutes from the Fed’s July meeting showed concern from policymakers about lagging inflation and the weak world economy.

The minutes also showed some specific concern about the slower growth in China, which led some investors to question the likelihood of a rate hike in September, in what would be the first increase in nearly a decade.

The dollar was on the defensive against the euro and yen on Thursday, having pulled back sharply after Federal Reserve meeting minutes suggested that policymakers were in no hurry to raise interest rates.

Fed officials widely agreed last month the economy was nearing the point where interest rates should move higher, but worried lagging inflation and a weak global economy posed too big a risk to commit to “liftoff.” That prompted traders positioned for a September rate increase to quickly unwind their bets, pushing the dollar in overnight trading to a three-week low of 123.68 yen, from a high of 124.47. The dollar last traded at 123.915.

The euro was steady at 1.1115 after surging 0.9 per cent on Tuesday when the Fed minutes were released. The dollar index inched up 0.1 per cent to 96.474 after an overnight loss of 0.7 per cent.  Sterling was buoyant near 7-1/2 year highs against a trade-weighted basket of currencies on Wednesday, drawing support from expectations that the Bank of England will start raising interest rates early next year.

Higher-than-expected core inflation in Britain along with comments from outgoing policymaker David Miles who said a UK rate hike would come “pretty soon” supported the pound.  It was up 0.2 percent against the dollar at 1.5700, having hit a seven-week high.