Dovish Fed minutes weigh on the USD Sending it to October 2018 Lows

Jan. 9, 2019 (Western Union Business Solutions)  – The U.S. dollar’s rout today to October lows was justified by a cautious set of minutes from the last Fed meeting. The minutes from the Fed’s December meeting at which officials raised rates for the fourth time in 2018 played up higher uncertainty and risks facing the U.S. economy from trade wars and slowing global growth. The minutes’ cautious tone bolstered the view that U.S. interest rates are on hold for now and even hinted that policymakers may almost be done raising rates. With inflation well contained and at risk of moderating in the wake of weaker oil prices, it seems like the door is closed for now for the Fed to increase borrowing rates, a dovish outlook that could leave the dollar susceptible to further downside risk over the coming days and weeks.

The Fed issues its first policy decision of the year on Jan. 30 at which it is all but certain to leave rates unchanged at 2.5%.



When it comes to all things Brexit – prepare for the unexpected. The coming week looms large for sterling with Britain’s parliament slated to finally vote on the prime minister’s unpopular Brexit deal on Jan. 15. Failure to pass Theresa May’s EU-endorsed plan would risk a sterling selloff, a scenario that could heightened the risk of a disorderly, no-deal, hard split from the EU. Still, the endgame for Brexit is anything but certain and could range from a host of scenarios such as delaying Brexit day that’s set for March 29 or holding another Brexit referendum.




The Bank of Canada today should offer a key test of strength in the loonie’s recovery from May 2017 lows. The loonie has clawed back ground thanks to the moderating greenback and the rebound in stock markets and oil prices. Crude topped $50 today, buoying commodity currencies. The BOC is expected to leave its base rate unchanged at 1.75% in the wake of tumultuous moves in both stock and oil prices. The BOC will also issue new forecasts for growth. The bar appears to be elevated for Canada to raise rates at all this year so if policymakers sound a hawkish note it could add fuel to the recent decline in USDCAD.




The euro moved to within striking distance of recent peaks in the wake of mixed data from the euro zone. News that area unemployment fell by a notch to 7.9% in November, a decade-low, helped to dim the spotlight on growing signs of weakness in the bloc’s top economy. Germany reported a larger than expected trade surplus of €19.6 billion in November which resulted from Germans buying far less from abroad than they sold. Next to fundamentally impact the single currency will be Thursday minutes of the ECB’s final meeting of 2018.



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