Fed reaffirms likely December rate hike despite concerns over weak inflation
James Chen, CMT October 11, 2017 8:41 PM
Despite the Fed’s reaffirmation of its likely intention to raise interest rates in December, the US dollar fell against other major currencies in the aftermath of the FOMC minutes release. The US dollar index had already been pressured earlier on Wednesday, extending its pullback from multi-week highs of late last week. This dollar weakness had been driven largely by a combination of profit-taking, growing concerns about the Trump Administration’s ability to fulfill its fiscal policy promises (most notably tax reform), and a relief rally for the euro on the back of a reduced threat of Catalonian secession from Spain.
These pressuring factors continued to weigh on the dollar even as the release of Fed minutes on Wednesday maintained market expectations for a December rate hike near 90% likelihood. Going forward, until the pivotal December FOMC meeting, dollar direction should be primarily dictated by the success or failure of US fiscal policy changes as well as speculation over who will be nominated and appointed to head the Federal Reserve after current Chair Janet Yellen’s term expires early next year. More likely than not, the new appointee will be more hawkish than Yellen, which could ultimately lead to a significant boost for the currently depressed dollar.
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