FOMC minutes emphasise dovish stance

Tom Tong10/Apr/2014Currency Updates


The pound didn’t exactly build massively on Monday’s great start, but it did manage to maintain those levels over the session. A retrace against the euro was less than a quarter of a cent, while dovish FOMC minutes lent some support to the pound late on against the greenback.

UK Trade balances did come in slightly better than expected, showing a reduction in the trade deficit of nearly £500mln. While this is certainly positive news, there is patently a long way to go until the government achieves its aim of a balanced economy, both in the short and long term.

Today sees the Bank of England’s interest rate and asset purchase decision, which is not expected to deviate from the current level of 0.5%. While unemployment is sticking above 7% and inflation is still below the 2% target, it is highly unlikely the governor will begin tightening in the near future.


The euro was also mainly affected by the FOMC minutes released, after a mixed day of data caused it to trade pretty flat against the pound.

The only European data was industrial production in Greece, which increased by 0.6% to 1.7% YoY growth. The original EU trouble country had more on its plate than industrial production yesterday though, as it made its first foray into the bond market since the crisis began back in 2010. Investors booked up around 11bln EUR worth of 5-year notes, which authorities hope will raise around 2bln EUR at a lower than expected 5% – all excellent news for Greece. The powers that be in the Eurozone will be more than pleased to see strong confidence in the long term stability of Greece and, consequently, the single currency.

More data from the Eurozone today, including French, Greek and Portuguese inflation, Italian output and the ECB’s monthly report.


US markets were quiet during the day as investors waited nervously for the release of minutes from last month’s FOMC meeting. In the end, a relatively dovish sentiment sent the dollar on its way downwards to 5 month lows against its major pairs.

Currency markets have been in turmoil ever since Janet Yellen’s speech a couple of weeks ago seemed to suggest a possible interest rate rise as early as Q2 2015. Yesterday’s minutes however highlighted the committee’s concern of confusion in the market following Yellen’s statement, and members were keen to stress the dovish nature of their policy going forward. While they did agree to scrap unemployment as a forward guidance measure, the idea of explicit tightening in the form of interest rate rise was not something they considered.

Data released from the US today includes import and export price indices, as well as initial and continuing jobless claims.


Written by Tom Tong

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