The minutes from the Federal Reserve’s last FOMC meeting at the end of October and beginning of November were released on Wednesday, a day before the Thanksgiving holiday in the U.S. While Fed officials discussed US economic growth and employment in positive terms, there was debate as to whether low inflation was indeed only transitory or if conditions relating to soft inflation may be here to stay. There were also concerns during the meeting that prices in US financial markets have become imbalanced and overextended, and there were worries that any potentially sharp fall in asset prices could have a significantly negative impact on the economy. As usual, the committee also asserted that future rate hikes would likely be gradual. While there were both hawkish and dovish elements in the FOMC minutes, clear concerns about persistently low inflation and the possibility of a financial market reversal skewed the tone towards the dovish side. Although markets continue to see a December rate hike from the Fed almost as a foregone conclusion, there is much less confidence about the pace of monetary policy tightening in 2018 given the Fed’s ongoing concerns.
While US equity markets were little changed after the minutes release, the US dollar saw a much greater impact. The dollar had already been pressured on Wednesday prior to the release. After the release, a further sell-off occurred, prompting the US dollar index to drop by around 0.80% for the day at one point in the afternoon. In the process, the dollar index, which tracks the US dollar against a basket of six other major currencies, hit a new one-month low, falling below both its 50-day moving average and the tight trading range that had been in place for the past several days. With further pressure on the struggling dollar, the next major bearish target immediately to the downside remains around the key 92.75 level, the area of the last major swing low in mid-October. Any drop below 92.75 could open a path for the dollar index back down towards its 91.00-area multi-year lows.