Dollar Dips After Fed Minutes As Euro Enjoys Relief Rally

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Wednesday 21:15 BST

What you need to know

  • Dollar weaker after Fed minutes but US Treasury yields left unmoved
  • All main Wall Street indices set record closing highs
  • Euro and Spain’s stocks higher after Catalonia suspends independence move
  • Madrid-listed financials lead Ibex 35 up 1.3 per cent
  • Gold heads into positive territory after Fed minutes
  • Oil benchmark WTI climbs further above $50 a barrel mark

Leading quote

“The majority of Fed officials are worried that core inflation might not rebound quickly but that isn’t going to stop them from continuing to normalise interest rates, particularly not when the unemployment rate is getting so low,” said Paul Ashworth of Capital Economics.

“A few wanted to delay the next rate hike until there were clear signs of a rebound in core inflation, but most were content to simply wait for the next few inflation reports. None of this will come as a big surprise to the markets. The dovish minority has been fairly vocal in speeches.”

Hot topic

The euro and Spanish assets extended relief rallies after Catalonia suspended independence moves while the dollar weakened after the release of Federal Reserve minutes showing the US is still on course for a December rate hike — despite dovish worries over low inflation.

Global stocks on the FTSE All World index set fresh highs, helped by Tokyo’s Nikkei 225 Average closing at 21-year peaks, while all three main US indices added closing highs to a plethora of recent records on Wall Street.

The dollar was under pressure again after putting in its worst performance in a month on Tuesday. Weaker for much of the session, the US currency dipped further after the minutes were released.

The dollar index — the gauge tracking its strength against a basket of peers — fell 0.4 per cent as the minutes from the September 20 meeting showed policymakers expressing fears that low US inflation was not just “transitory”.

The minutes did little, however, to shift expectations of a near-80 per cent probability that the Fed will raise rates at its December meeting — with both 10-year Treasury yields and more rate-sensitive two-year Treasury yields left unmoved immediately after the release.

The minutes showed “many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also . . . developments that could prove more persistent” — nonetheless, “many participants thought that another [rate] increase . . . later this year was likely to be warranted”.

The dollar was trading positively at the time of the Fed’s September 20 meeting, noted Adam Cole of RBC. “That meeting marked the start of the trend of repricing near-term rate prospects. With a December rate rise now fully priced in, however, further gains for the dollar are more challenging.”


The euro’s break above its 50-day moving average pushed the single currency to its best level in two weeks versus the dollar.

But analysts were quick to caution that market responses to the news from Catalonia so far had been limited in scale with bond markets, in particular, playing a watching brief.

Kit Juckes of Société Générale said: “Our rates strategists are surprised that spreads haven’t widened more amid the uncertainty about what happens next and are not bullish — but for the FX market and the euro, this has been the dampest of squibs.”

Lee Hardman of Bank of Tokyo-Mitsubishi UFJ agreed that political ructions were only having a limited impact on the euro. “This appears reasonable, the 10-year yield spread between Spanish and German government bonds is still broadly in line with its average over the last couple of months.”

Markets were viewing Catalonia as another budding risk event that had fallen by the wayside, said Joseph Lawler of London Capital Group, who noted that while Spain’s Ibex stood out, “broader markets barely flinched at the chance of Catalonia separating from Spain anyway”.

The euro climbed 0.5 per cent to $1.1865 while against the dollar the yen rose 0.1 per cent to ¥112.38 and the pound gained 0.2 per cent to $1.3230, respectively.


The Ibex 35 index closed up 1.3 per cent, returning the Madrid benchmark to levels seen at the start of October. Frankfurt’s Xetra Dax rose 0.2 per cent as the region-wide Euro Stoxx 600 ended flat.

There were brighter numbers on the periphery of the eurozone. Portugal’s PSI 20 rose 0.6 per cent and Italy’s FTSE MIB gained 1 per cent.

The FTSE All World index set an all-time intraday high, advancing 0.2 per cent.

Wall Street’s S&P 500 gained 0.2 per cent to 2,555.24 and the Dow Jones also rose 0.2 per cent to 22,872.89 at the closing bell. The Nasdaq Composite moved up by the same amount to 6,603.206. All were record closing marks while the Dow’s finishing level represented an all-time intraday high.

Earlier in Asia, the Nikkei 225’s 0.3 per cent rise pushed it over a 2015 mark for its best close since 1996.

The Tokyo market has been buoyed by the increased chances of Shinzo Abe being re-elected as Japanese prime minister this month after popular opposition leader Yuriko Koike decided against running for parliament.

“Japan’s stock market has hit a two-decade high but we think it has further to run,” said Trevor Greetham of Royal London Asset Management. “The economy is picking up, corporate profits are being upgraded and the central bank is on the side of equity holders.”

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Source :



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