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The FOMC minutes seemed open to the idea of letting inflation run past the 2% target and having a slower pace of tightening, which forced dollar bulls to take a step back.

The yen also took some hits while commodity currencies gained from risk-taking, but the rallies were shaky as the issue of tariffs returned.

  • U.S. Markit flash manufacturing PMI up from 56.5 to 56.6 as expected
  • U.S. Markit flash services PMI up from 54.6 to 55.7 vs. 54.9 forecast
  • Euro zone consumer confidence index unchanged at 0 as expected
  • U.S. new home sales fell from 672K to 662K vs. 680K forecast
  • U.S. EIA crude oil inventories rose by 5.8M barrels vs. projected 2.5M decline
  • FOMC minutes: Modest inflation overshoot “could be helpful”
  • FOMC minutes: Interest rate hike would “soon be appropriate”
  • FOMC minutes: Trade issues pose risks
  • Trump administration to impose 25% tariffs on imported autos?

Major Events/Reports:

FOMC minutes released

The transcript of the latest monetary policy meeting revealed that Fed officials might be in no rush to tighten even if inflation overshoots their 2% target soon.

However, the minutes did hint that another tightening move is in the cards for next month, citing:

“Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate for the Committee to take another step in removing policy accommodation.”

But what probably kept the bulls from charging was this bit:

“[A] temporary period of inflation modestly above 2 percent would be consistent with the Committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective.”

Some policymakers even went on to suggest that a change in forward guidance could be necessary, possibly incorporating more economic changes they’d like to see before hiking again. The minutes also revealed that committee members “expressed a range of views” on how policy should proceed.

What most policymakers agreed on is that fiscal and trade issues pose risks, particularly when it comes to “possible adverse effects of tariffs and trade restrictions, including the potential for postponing or pulling back on capital spending.”

Trump’s tariffs talk resumes

Just when everyone and his momma thought that trade troubles might be over, U.S. President Trump signaled his intention to impose 25% tariffs on imported vehicles.

The administration might even make use of national security law to justify such tariffs, specifically the legal provision of the 1962 Trade Expansion Act which they also used as reasoning behind the higher duties on steel and aluminum imports.

The Donald tweeted:

He also formally announced (still on Twitter, of course) that trade talks with China are “moving along nicely, but in the end we will probably have to use a different structure in that this will be too hard to get done and to verify results after completion.”

A bit of risk-taking?

Most higher-yielding assets managed to hold on to some gains after the FOMC minutes suggested that the central bank won’t be in a rush to hike rates even with higher inflation.

  • Dow 30 index is up 52.40 points to 24,886.81 (+0.21%)
  • S&P 500 index is up 8.85 points to 2,733.29 (+0.32%)
  • Nasdaq is up 47.50 points to 7,425.96 (+0.64%)

Gold edged higher on dollar weakness, but crude oil returned some of its wins when the EIA report indicated a surprise build in stockpiles versus the estimated decline.

  • Gold is up to $1,293.80 per troy ounce (+0.33%)
  • WTI crude oil fell to $71.73 per barrel (-0.15%)
  • Brent crude oil is down to $79.66 per barrel (-0.09%)

U.S. bond yields also took hits on toned down tightening expectations for the foreseeable future.

Major Market Mover(s):

EUR & GBP

Weak economic reports from the euro zone and the U.K. released in the earlier session rendered this European tandem barely able to take advantage of dollar or yen weakness.

EUR/USD slid from 1.1713 to a low of 1.1689, EUR/JPY dipped to a low of 128.24 before making a small bounce, EUR/AUD resumed the drop to 1.5478, and EUR/NZD slipped to 1.6911.

GBP/USD hit a low of 1.3310 before pulling up, GBP/JPY is down to 146.61, GBP/CAD hardly looked back from its tumble to 1.7158, and GBP/NZD is down to the 1.9300 handle.

USD & JPY

The scrilla struggled to stay afloat even with June rate hike expectations confirmed as the selloff accelerated a few hours after the FOMC minutes were printed.

Surprisingly, traders didn’t really flock to the lower-yielding yen as a response to dollar weakness, probably because the prospect of slower tightening lifted risk appetite.

USD/JPY climbed from 109.72 to a high of 110.30 before slumping back to 109.75, USD/CHF rallied from .9909 to .9979 then slipped to .9945, AUD/USD is up to .7565, and NZD/USD rose to .6924.

AUD/JPY pulled up to a high of 83.29, NZD/JPY climbed to the 76.00 handle, and CAD/JPY is up to a high of 85.90.