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US dollar rebounds after hawkish FOMC minutes

US dollar daily update

BY DEB SHAW | 

US dollar daily update

The US dollar is currently rebounding. The dollar is the strongest against the Japanese yen and the Australian dollar today. Yesterday, the currency ended the day lower. While the dollar did temporarily strengthen following the release of FOMC minutes, the US dollar index ended the day lower. Today, the buck is strengthening after falling for the last four trading days in a row. 

Looking more deeply at the FOMC minutes, all Fed policymakers expect inflation to accelerate over the next 12 months. Many also expect the Trump administration's tax cuts to provide tailwinds for the economy. Lastly, a majority of policymakers saw a trade war as a negative for the economy. While the Fed is signaling more rate hikes given its inflation outlook, the bond market appears to disagree. Looking at US Treasuries, bond yields peaked in late February and have been falling since that time. Yesterday, reactions in bond markets were limited despite the Fed's hawkish tone. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.       

USD/JPY is up slightly today and currently trading above 106.90. EUR/USD is down slightly and trading above 1.2350. The pound is flat, and GBP/USD is currently above 1.4170.

Looking at US economic data this week, traders will be watching inflation data. The producer price index for March (3% vs. 2.9% expected) accelerated above estimates. The YoY consumer price index for March (2.4%) met consensus estimates. Fed policymakers believe that inflation is likely to keep accelerating according to March FOMC minutes. Later today, we'll see initial jobless claims. On Friday, we'll hear a speech from the Fed's Bullard and see consumer sentiment figures for March. Last week, non-farm payrolls figures missed expectations by a wide margin. 

Updated