Bearish Federal Reserves minutes send US dollar tumbling

The unexpectedly bearish minutes of the Federal Reserve's July policy meeting sent the US dollar sinking (Aug 19).
The unexpectedly bearish minutes of the Federal Reserve's July policy meeting sent the US dollar sinking (Aug 19). PHOTO: AFP

WELLINGTON (AFP, BLOOMBERG) - The unexpectedly bearish minutes of the Federal Reserve's July policy meeting has sent the US dollar sinking.

Markets took the tone of the record of the July 28-29 meeting as a sign that the central bank was less likely to begin hiking interest rates in its September meeting, though some analysts said that could still be in the cards.

The US dollar fell more than one cent against the euro on Wednesday (Aug 19) after the release of the minutes, and finished at US$1.1121 to the euro and at 123.89 yen. It was little changed at 123.91 against the yen by 8.51 am on Thursday (Aug 20), after slipping 0.5 per cent on Wednesday.

Crude oil continued its descent following an unexpected uptick in American stockpiles, and copper also fell. Asian index futures were mostly lower after US stocks dropped on resurgent concern over China and the global economy.

The Fed minutes "failed to provide a smoking gun for a September rate hike", Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand, said in a client note. "What won't be lost on investors is that US oil prices have fallen nearly 16 per cent since the July FOMC meeting. This will prove disinflationary."

Odds on a September rate increase were further reduced on Wednesday after Fed officials said that while conditions for a hike were approaching, they needed more confidence inflation was shifting towards their goal. The meeting occurred before China's shock devaluation on Aug 11, which had already prompted some investors to scale back their bets. Most Chinese stock futures signaled losses in recent trade, following a volatile day for mainland shares and declines in Hong Kong-traded equities.

West Texas Intermediate crude fell a second day, losing 0.2 per cent to US$40.71 a barrel following a 4.3 per cent tumble on Wednesday, its steepest one-day retreat since July 6. Brent oil lost 3.4 per cent last session, to US$47.16 (S$56.96), the lowest settlement since January.

A surprise 2.62-million barrel increase in US oil inventories fuelled the losses, with analysts projecting an 820,000-barrel drop. Energy producers and mining companies led declines in the S&P 500, with both industry groups down at least 1.2 per cent. Oil has fallen 30 per cent from this year's peak amid mounting concern over a global glut in the commodity.

The tumble in crude and losses from coffee to crops drove the Bloomberg Commodity Index down for a seventh straight day. The gauge slipped 0.9 per cent to its lowest level since January 2002.

The Fed's caution over inflation propelled Treasuries higher on Wednesday, with 10-year yields down seven basis points, or 0.07 percentage point, to 2.13 per cent. Similar maturity Australian government debt yielded 2.69 per cent, down six basis points, while rates on New Zealand notes due in a decade fell three basis points to 3.31 per cent.