Article Highlights

  • FOMC minutes revealed mixed views on timing of rate hikes
  • Fed policymakers pushed for gradual adjustments in policy
  • FOMC: Trump’s fiscal policies to pose upside risks to growth
  • FOMC to continue to monitor inflation as energy prices pick up
  • U.S. total vehicle sales up from 17.9M to 18.4M vs. 17.8M forecast
  • Australia’s AIG services index up from 51.1 to 57.7
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Looks like the FOMC members weren’t all that hawkish! The minutes of their December meeting dragged the dollar down when it highlighted the split among policymakers.

Major Events:

Mixed FOMC views – In their December statement, the FOMC decided to hike interest rates by 0.25% while hinting that three more increases are on the table for this year. However, the transcript of their huddle revealed that some members were pushing for a faster pace of tightening while others preferred gradual adjustments.

On one hand, Fed officials seemed wary about the incoming Trump administration’s fiscal policy changes, particularly when it comes to the timing, size, and composition of any initiatives. These uncertainties, combined with the dollar’s recent rallies in anticipation of the Donald’s proposed tax reforms and higher infrastructure spending, warrant gradual adjustments in monetary policy for at least half of the committee.

On the other hand, several members argued that Trump’s potential policy changes pose an upside risk to growth and that they’ve already incorporated these assumptions in their economic outlook. Aside from that, many noted that the transitory effects of weaker energy prices and non-energy import prices have dissipated, likely bringing inflation to their 2% target sooner or later. To top it off, the labor market continues to strengthen so they might need to step on the gas when it comes to tightening monetary policy.

Crude oil bounce – After falling by more than 2% on news of Libya cranking up production earlier this week, crude oil staged a pretty solid rebound back above the $53/barrel level. Market watchers were assured that OPEC nations would follow through on their output deal after state-owned Kuwait Petroleum Corporation started notifying its clients that production cuts would take effect this month.

Aside from that, the American Petroleum Institute reported that inventories fell by 7.4 million barrels in the week ending December 30, reminding market participants that oversupply concerns are fading. Also, the U.S. new vehicle sales report showed a gain from 17.9 million to 18.4 million instead of dropping to 17.8 million. This surge in automobile purchases suggests that demand for fuel would likely pick up as well, adding to the upside pressure in energy costs.

Major Market Movers:

USD – The dollar’s knees buckled after the FOMC minutes were released as bulls were disappointed to find out that not all members were in favor of faster rate hikes.

EUR/USD popped up from 1.0438 to a high of 1.0500, GBP/USD climbed from 1.2260 to a high of 1.2353, USD/JPY slipped from 117.59 to 117.10, and USD/CAD dropped from 1.3375 to 1.3288.

CAD  Thanks to the recovery in crude oil prices, the Loonie was the best performer of the session as it recouped its previous day losses.

CAD/JPY edged up from 88.00 to a high of 88.44, GBP/CAD tumbled from 1.6440 to a low of 1.6331, and AUD/CAD retreated from the .9750 area to a low of .9661.

Watch Out For:

  • 1:45 am GMT: Chinese Caixin services PMI (53.3 expected, 53.1 previous)

See also:

London Session Recap

Asian Session Recap

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