Uncertainty – The Dollar’s Nemisis

There is little for the markets to consider through the European and U.S sessions today, this morning’s finalized GDP for the 4^th quarter and GfK consumer climate figures doing little to peg back the EUR, despite the consumer climate index weakening for March.

The Dollar sell-off was relatively short lived on Wednesday, following the release of the FOMC meeting minutes, the markets taking the minutes as dovish, despite the upbeat sentiment towards the U.S economy and the need to lift rates soon.

The reality is that the probability of a March rate hike was well below normal levels seen when the market is expecting the FED to make a move. So the lack of commitment to a March rate hike was not as damaging as some may have considered, the potential for upside being far greater, had the FED committed to seriously considering a move in a few weeks.

Material economic data out of the U.S today limited to the weekly jobless claims figures. The jobless claims figures are unlikely to have a material impact on the direction of the Dollar through the day, barring a jump in initial claims to above 300k levels. But, the markets will now have to consider the impact of what is likely to be a common theme within the FED and other Central banks in the coming months, uncertainty.

Trump and the rest of the team have certainly managed to keep the FED, Americans and even people from around the world second guessing what’s next. The latest GFK Consumer Climate figure, which weakened for March. The decline reflected concerns among German workers in export industries over the U.S president and the administration’s intentions on protectionism.

FOMC Vice-Chair Fischer spoke last weekend of the fact that the FED would go about its business, focusing on economic indicators and the outlook on inflation and the labour market. The latest minutes suggest that it may not be so cut and dry for the FED, FOMC members wanting to get some clarity before making a move. Members may be waiting for a long time should they be looking for certainty over the intentions of the U.S president and the administration. The laundry list of changes lengthy, the recent decision to delay tax reforms a reflection of the inexperience of the administration.

Things will need to improve and the promise of tax reforms and sizeable fiscal stimulus package will need to be met in the months ahead, the question being how long FOMC members will be willing to sit back on monetary policy. Trump is looking for a weaker Dollar and he’s found a way to achieve it and the FED has taken the bait for now.

The good news for the Dollar bulls is that there are a number of hawks within the Committee, with even the FED Chair looking more supportive of a rate hike than usual. The markets remain unconvinced for now and non-Voting member Mester’s comments earlier in the week that the FED would not be looking to surprise the markets with a rate hike will likely resonate through the remainder of the day.

Despite the market’s reaction to the latest minutes, the Dollar has managed to find its feet through the early part of the day, a relatively silent oval office and market focus on the strength in the U.S economy supporting the Dollar.

At the time of the report, the Dollar Spot Index stood at 101.35, up 0.04% on the day, as the markets take a pause following the disappointment of the minutes.