The front end of the US yield curve is pretty much exactly where it was yesterday morning, irrespective of the FOMC Minutes and any press comment. Oil prices are slightly higher, 10yr Treasury yields are flat overnight but up from this time yesterday. And the dollar is weaker across the board, but particularly against the yen. Recent correlations are in a mess. That doesn’t mean that they are broken – it’s far too early to say that – but the DXY/10yr Note correlation is out of whack today and the correlation between the yen and the S&P or ‘risk’ more generally has been under severe pressure for a while.
The FOMC Minutes themselves don’t tell us much we didn’t already know. “Members continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market indicators would continue to strengthen. However, they saw global economic and financial developments as continuing to pose risks.”
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There’s no reason to alter a view that the Fed is likely to raise rate since this year, nor to alter a view that the Fed is watching markets every bit as closely as the US economy. We expect a single hike this year. And to be fair, there is nothing here to help the dollar; the only question is at what point the combination of decent US data (jobs, ISM in recent days) and ‘riskon’ mood change the market’s perception of Fed risks.