It has been a relatively light week in terms of economic data so far and investors are desperately looking for drivers. After falling as much as 2%, the dollar index got some colours back this week amid building expectations for monetary tightening from the Federal Reserve. The FOMC minutes are due for release later this afternoon (GMT 6pm) and will be the centre of the attention as investors are eager for more information about the Fed balance sheet unwinding program.
We anticipate the minutes won’t provide further clarity, especially regarding the latter subject, as a first draft of the plan has already been released in mid-June, together with the statement and projections. Given the recent weakness in inflation and lacklustre households’ consumption data, it is more likely that the minutes highlight the concerns of FOMC members.
On the other hand, Janet Yellen has expressed concerns about the negative effect of ultra-loose monetary policy, especially on the stock market. Indeed, valuations on the stock market seem completely out of touch and this raises the question of the reaction of investors when the Fed’s unwinding actually kicks in. All in all, we believe the minutes won’t fuel a dollar rally today.
By Arnaud Masset