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The minutes from the September 20 to 21 meeting revealed that the FOMC was heavily divided on what to do with the economy. Two members wanted the central bank to engage in stronger action (i.e., quantitative easing), three voted for no action, while the rest favored Operation Twist. Of course, we now know that it was the Operation Twist camp that won.

According to the minutes, most members agreed that for QE3 to be implemented, deflationary risks (falling consumer prices and no economic growth) must rise and the economy must worsen.

Now, I’m not saying that the economy is filled with rainbows and butterflies, but I guess the Fed‘s bearishness wasn’t as worrying as what the market initially thought.

This makes sense since recently released data from the U.S. have actually been… well… good! Hah, that’s something you don’t hear every day!

For instance, the non-farm payrolls report that was released last Friday came out with a nice surprise. It printed a 103,000 figure, almost double the forecast. Furthermore, last month’s non-farm payrolls, which showed zero jobs growth, saw a revision to 57,000.

Leading indicators have also been showing some positive things. The ISM manufacturing PMI and the Chicago PMI both came out better than expected while the University of Michigan consumer sentiment survey for September was revised up to 59.4 from 57.9.

The second quarter GDP was also revised for the better. New data revealed that the economy actually grew by 1.3% instead of 1.0%.

Lastly, developments in the euro zone have been encouraging. Earlier this week, the European Union, the European Central Bank (ECB), and the International Monetary Fund (IMF) all decided to hand over the next tranche of financial aid to Greece.

Meanwhile, German and French leaders have committed to the movement towards bank recapitalization. This has toned down fears of a collapse in the European financial system and has boosted risk sentiment the past week.

After the sluggish performance during the summer season, it seems to me that growth is once again on the rise, but not at as fast a pace as Fed officials would like of course.

Knowing the Fed, they will more likely stick with their wait-and-see approach and gauge whether the U.S. economy improves or not. That being said, I doubt that we’ll see QE3 or any other monetary policy easing at the next Fed meeting.

As for the U.S. dollar, I see two potential scenarios playing out.

On one hand, we could see risk appetite pick up, as the lack of any additional measures could be interpreted by the market as a sign that the economy is getting stronger. This could make investors more confident in putting their cash in riskier assets like stocks and commodities, which could lead to some dollar weakness.

On the other hand, we could see the dollar rally on the strength of an improving fundamental outlook. In addition, the dollar could get a boost as the threat of QE3 dies down.

In any case, we should be in for an exciting winter season. Who knows what could happen in the next month! Make sure to keep abreast with current developments and stay on top of your fundamentals game!