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The US dollar edged lower for most of Wednesday but got an unexpected push by the US Federal Reserve’s Meeting Minutes. US policymakers use the kind of language confirming a looming interest rate hike and that the quantitative easing, stimulus asset and asset purchases are no longer necessary.
The minutes document shows that most participants judged conditions for a rate hike could be met relatively soon if the recent pace of the US labour market improvements continues.
Wall Street was trading mixed, with the Nasdaq Composite sharply down but the DJIA soaring to record levels. The selloff in tech equities could be due to certain risk-aversion, as investors are dropping high growth shares to the benefit of more valuable, cyclical stocks.
Fed’s announcement sent all of the major indexes into the red territory as US government bond yields jumped. The yield on the 10-year Treasury note reached the notable 1.70% threshold.
The EUR/USD pair peaked at 1.1346, shedding ground and now hovering at around 1.1310. GBP/USD flirted with 1.3600, also retreating but retaining most of its intraday gains. Commodity-linked currencies trimmed intraday gains post-Fed, ending the day with modest losses. Safe-haven currencies were up, with the USD/JPY pair holding above the 116.00 threshold.
Gold peaked at 1,829.59, from where it began retreating ahead of the Fed. It currently trades at around $1,814 a troy ounce. Crude oil prices retain modest gains, with WTI trading at around $77.60 a barrel.
Economic Data
Earlier on Wednesday, the US published the ADP survey on private job creation, which printed at 807000 much better than anticipated.
US crude oil inventories fell by 2.144 million barrels in the week ending December 31st, a sixth consecutive period of declines and compared with market forecasts of a 3.283 million drop, data from the EIA Petroleum Status Report showed on Wednesday.
Meanwhile, gasoline inventories surged by 10.128 million barrels, the most since April 2020 and much more than market expectations of a 1.775 million increase, raising concerns of declining demand in the world’s biggest consumer amid a surge in Covid cases caused by the fast-spreading omicron variant.
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 2.6 million barrels in the last week, EIA said.
Refinery crude runs rose by 164,000 barrels per day in the last week, EIA said. Refinery utilization rates rose by 0.1 percentage points in the week. Net U.S. crude imports fell last week by 500,000 barrels per day, EIA said.
The IHS Markit Australia Composite PMI was unrevised at 54.9 in December of 2021, pointing to a slower rate of private sector output growth, however high by historical standards.
Other Developments
US Fed policymakers indicated that inflation gauges “had been higher and were more persistent than previously anticipated,” the minutes stated. While members said they think growth will be “robust” in 2022, they also said inflation poses a strong risk, perhaps even more so than the pandemic.
Consequently, they said it would be time to tighten policy sooner than anticipated. “Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures,” the minutes said.
Along those lines, the committee announced it would speed up the tapering pace of its monthly bond-buying program. Under the new plan, the program would now end around March, after which it would free up the committee to start hiking rates.
US President Joe Biden could announce remaining Federal Reserve Board of Governor Nominees as soon as this week, a source told Reuters. Michigan State University economist Lisa Cook, former Fed research economist Philip Jefferson, and former Fed Governor Sarah Bloom Raskin are the leading candidates as the Biden administration seeks to diversify the Board of Governors.
