The US dollar seems to be gaining strength after the minutes of the latest FOMC meeting were released last night. Investors were looking for tapering clues and it seems that they got them.
Federal Reserve policymakers expressed differing views on the appropriate pace of tapering asset purchases, but most of them noted that it might be appropriate to start reducing it this year, provided the economy grows as expected, according to the minutes of the July meeting. Most officials judged that the standard for substantial further progress toward the maximum employment objective had not yet been met, while the standard with regard to the price stability target has been met . Nonetheless, several others suggested that preparations to reduce the pace of asset purchases should include the possibility of the reductions not to occur for some time and highlighted the risk that the growing number of COVID-19 cases associated with the spread of the delta variant could supress the recovery. The Fed left the target range for the federal funds rate unchanged at 0-0.25% in July and bond purchases at a pace of $120 billion per month.
Hence, the key for the further fate of monetary policy in the US and the fate of the USD may again be the symposium in Jackson Hole on 26-28.08, where Jerome Powell, the head of the Fed may bring closer the date of reducing the scale of purchases. The market estimates that the most probable date may be December 2021, when the value of monthly purchases could drop from 120 to 80 billion USD.
The dollar index carried by the wave of more hawkish comments rose to the highest level since November 2020, surpassing 93.4 points. EUR/USD, on the other hand, slipped below 1.1700, a potential key support, which could open the way to much lower levels. The tapering announcement and dollar strength also seem to be affecting other markets.
It is worth noting that WTI crude oil futures fell about 2 percent to $64 per barrel on Thursday, which seems to extend the series of declines for the sixth session, and the price is near 3-month lows. In addition to a stronger dollar, concerns about the outlook for demand also seem to persist after the rapid global spread of the Delta strain of the COVID-19 virus forced several countries to re-impose travel and air traffic restrictions.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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