Fed Members Jawbone Dollar Weaker Ahead Of Minutes

Another round of speeches from Fed members has once again weakened the USD overnight as all the market hears is dovish sentiment and a will to keep stimulus at current levels. Chicago Fed President Chuck Evans stated last night that he could easily see the overall amount of bonds bought as part of the current asset purchase program hitting $1.5trn and that he was “not in a hurry to reduce the flow of purchases… rather wait just a little bit longer and have more confidence.”

Inflation is not an issue in the US at the moment, much like most of the western world, and therefore the near-term risks of increased stimulus are viewed to be slim. Markets don’t deal in certainty and Evans will want to get as close to certainty that the US recovery is entrenched in both spending and jobs markets before taking his foot of the accelerator.

Likewise, a speech by Ben Bernanke yesterday was received positively by the market as he too hinted that improvements in jobs markets were not sufficient to guarantee a continuation of improvement in the absence of the Fed’s full support. He also said that his views echoed that of the incoming Fed Chair Janet Yellen; the votes to keep stimulus into 2014 are gathering momentum.

GBPUSD pushed further above the 1.61 level on these speeches while EURUSD based above 1.35.

Yesterday saw German ZEW – a survey of German business conditions both currently and expected in the future – show a mixed picture of confidence. We saw a slight fall in German investor confidence in the current situation but an increase in expectations looking forward to a 4yr high. Whether this mirrors a solid growth path or the prospects of looser monetary policy for longer in the Eurozone remains to be seen but certainly increases the prospects of a disappointment.

Given the correlation between the two releases, we should see Friday’s IFO number disappoint, following a fall in October’s assessment. European data is thin on the ground today.

As we stated yesterday, we are not expecting much from the Bank of England’s minutes today; a lot will have been revealed as part of last week’s Quarterly Inflation Report. That being said, we would expect to see some hawkish sentiment in this month’s thoughts following the decision to amend the timeline of rate hikes, given the improvement in the UK’s jobs market. The minutes are due at 09.30.

The other set of central bank minutes due today come from the Federal Reserve at 7pm GMT. Given recent speeches we would expect the dovish tone to be reiterated, alongside a surprise that the recent government shutdown and debt ceiling fight did not hurt the economy more than it did. I doubt we will see too much discussion of any adjustment of thresholds for the Fed’s forward guidance – some economists had hypothesised that the unemployment could be moved to 6% from its current 6.5%.

US retail sales and inflation are the main macro releases today with both expected to show very little improvement. Retail sales are expected to expand by 0.1% in October while CPI should remain flat on the month.