CURRENCIES: Dollar Follows Treasury Yields Higher After Fed Minutes
By Anneken Tappe
Dollar initially fell in knee-jerk reaction to January meeting details
The U.S. dollar erased its earlier gains in a knee-jerk reaction to the Federal Reserve's January meeting minutes, but soon regained lost ground and rallied as U.S. Treasury yields moved higher.
Where are currencies trading?
The ICE U.S. Dollar Index , which measures the buck against a basket of six rivals, climbed 0.4% to 90.064, adding on from its Tuesday gains. The broader WSJ U.S. Dollar meanwhile ticked up 0.4% to 83.91.
The British pound was one of the weakest performers among the buck's main rivals early on in the session following economic data that came in below expectations. The pound last bought $1.3919, compared with $1.3997 late Tuesday.
The euro was also trending lower, slipping to $1.2291 from $1.2339.
Read:Why investors are counting down to the most important date on Europe's political calendar (http://www.marketwatch.com/story/investors-are-counting-down-to-the-most-important-date-on-europes-political-calendar-2018-02-20)
The greenback extended gains against the Japanese yen , with one dollar last buying Yen107.79, up from Yen107.33 late Tuesday in New York. The dollar-yen pair fell to a 15-month low last week, trading below 107 yen as Japanese investors repatriated cash they had freed up when U.S. stock fell.
Against the Swiss franc , the dollar strengthened to 0.9385 francs versus 0.9360 francs.
Back in North America, the buck also strengthened versus the Canadian dollar , buying C$1.2695, up from C$1.2647.
What is driving the market?
The dollar saw choppy trade following the Fed minutes, first paring gains and turning negative (http://www.marketwatch.com/story/dollar-turns-lower-after-fed-minutes-2018-02-21) before jumping back into positive territory again as Treasury yields inched higher.
The minutes, which stressed both the strong U.S. economy, as well as the central bank's "gradual" approach to interest rate increases, could have initially disappointed hawks among currency traders. The summary also showed that only a few members of the Federal Open Market Committee were concerned about the economy overheating (http://www.marketwatch.com/story/fed-minutes-only-a-couple-were-worried-about-the-economy-overheating-2018-02-21).
Read:Yes, the U.S. dollar is weaker--but there could be a silver lining (http://www.marketwatch.com/story/yes-the-us-dollar-is-weaker-but-there-could-be-a-silver-lining-2018-02-21)
In the U.K., the unemployment rate unexpectedly rose (http://www.marketwatch.com/story/uk-jobless-rate-unexpectedly-increases-2018-02-21) for the first time in almost two years in the fourth quarter of 2017. Pushing the unemployment rate to 4.4%, this was the largest quarterly increase since 2013, and it took its toll on the pound.
Bank of England policy makers said wages in the U.K. are strengthening as data showed salaries growing 2.5% in the final quarter of 2017, which led the pound to briefly jump above $1.40 (http://www.marketwatch.com/story/pound-briefly-tops-140-as-bank-of-england-officials-see-pickup-in-uk-wages-2018-02-21).
Meanwhile on the European continent, Markit PMI data for February showed a slowdown across the board, in the eurozone's manufacturing, services and composite data, which is seen as a knock the currency block's spotless growth trajectory over the past months.
What are strategists saying?
"The bond market just started believing the Fed and the FX market is believing bonds," said Boris Schlossberg, managing director of FX strategy at BK Asset Management. "The initial selloff didn't make much sense"
"We're calling this a dollar recovery week," Schlossberg said, adding that the Yen108 target was once again a benchmark to watch, which could signal that the newfound dollar strength was here to stay.
"The last few days of dollar index appreciation probably have accounted for minutes like this, so it's hard to for me to think this will cause a significant acceleration of index than we have seen in the last few days' appreciation," cautioned John Velis, macro strategist for State Street.
What are the data?
An index that tracks U.S. manufacturers rose to a nearly 3 1/2-year high (http://www.marketwatch.com/story/us-businesses-grow-rapidly-at-start-of-2018-ihs-markit-finds-2018-02-21)in February and a gauge for service-oriented companies hit a six-month peak, according to IHS Markit's flash PMI. The manufacturing index rose to 55.9 from 55.5. The services barometer climbed to 55.9 from 53.3. Any number over 50 signifies expansion, and results above 55 are considered exceptional.
Existing home sales for January dropped 3.2% (http://www.marketwatch.com/story/existing-home-sales-tumble-at-the-fastest-pace-in-more-than-3-years-as-supply-crunch-deepens-2018-02-21), marking its second consecutive decline.
What are other assets doing?
In emerging markets, South Africa's rand rallied 0.5% against the dollar on Wednesday, riding a wave of positivity after South Africa passed its first VAT increase in 25 years, lifting the rate to 15% from 14%. The Treasury meanwhile said that the nation's budget deficit was going to slim down to 3.5% of GDP by 2020, compared with 4.3% in the 2017/18 fiscal year.
The move looks to be a the first fiscal reform by President Cyril Ramaphosa, who took over the reigns from Jacob Zuma last week (http://www.marketwatch.com/story/south-africa-etf-currency-holds-gains-as-president-zuma-resigns-2018-02-14), as South Africa's public finances had deteriorated under Zuma's presidency.
One dollar last bought 11.6638 rand, down from 11.7303 late Tuesday in New York.
(END) Dow Jones Newswires
February 21, 2018 15:41 ET (20:41 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.