The U.S. Dollar is down after a surprise appreciation of the Yuan and Fed Minutes that were assessed as more dovish than previously interpreted. The FOMC cited their optimism behind fiscal expenditures potentially driving further growth to the economy, but their statement on the current pace of rate hikes turned off traders who read it as a slowdown of gradual hikes. In December, the Fed outlined three hikes for 2017, but already there are many doubters. The Bloomberg Dollar Spot Index fell 0.2%, the biggest greenback drop in two months.
The offshore Yuan rose by 0.6% overnight after appreciating by 1.4% throughout Wednesday, which represents the biggest two-day increase on record. As the Chinese New Year approaches, the government advised companies to stock up on the currency before the holiday. Consequentially, commodity-based currencies are on the rise to keep up with the world’s second largest economy.
ADP Employment Change disappointed with a reading of 153K jobs under the estimated 175K. The prior month’s results were also revised downward. Markit US Composite and Services PMIs as well as ISM Non-Mfg. will be out at 9:45AM, which could have some influence.
The Euro picked up overnight as inflationary data hit a multi-year record best. Consumer Prices in the euro-zone increased by 1.1% year-on-year in the month of December, the highest level since July 2011. Economic indicators have painted a much rosier picture of the European economy, one that is seeing the benefits from aggressive quantitative easing.
The ECB has done its job, but it will be up to member nations’ governments to start spending so that the recovery is sustainable and more impactful on the lives of common people. Established leadership must make the case that their financial tightening, in terms of austerity measures, along with ECB policies are aiding the economy. Otherwise, they will be out of power and risk losing what has been accomplished through some tough disciplining.
The Japanese Yen surged as stock markets dwindled in Japan and the Fed Minutes helped ease losses to the dollar based on policy divergence. The currency of the rising sun is also gaining on becoming a preferred reserve currency with worldwide holdings of Yen at their highest level in 13 years. The Chinese have purchased lots of Japanese treasury bonds, buying the most since 2005. There is optimism behind Japan’s economy as the government readies a stimulus package and BOJ’s monitoring of the yield curve.