The US dollar found some much-needed support after the latest Federal Reserve minutes showed officials openly debating when to raise interest rates with US unemployment close to a 6.5 per cent threshold. The US dollar has now bounced above a near seven-week low against the euro but may find that recovery short-lived should the euro area PMI surveys strengthen the economic recovery outlook for the 18-member zone. The pound’s earlier run to multi-year highs took another back step after an unexpected rise in Britain’s unemployment rate caught many market participants by surprise. Following the key eurozone PMI data investors will keep a close eye on comments from the European Central Bank’s Vitor Constancio for any clues about future monetary policy options.
Sterling
Sterling fell further away from earlier four-year highs against the US dollar after UK data on inflation and jobs bolstered the view that any rate rise from the BoE appeared at least a year or more away. Data showed a surprise increase in UK unemployment to 7.2 per cent in the three months ending in December against forecasts of 7.1 per cent. BoE minutes from February’s meeting showed that all of the Monetary Policy Committee voted to leave rates unchanged at 0.5 per cent and asset purchases at £375 billion, as expected. Downside risks for sterling remain intact ahead the UK retail sales data.
US dollar
The US dollar firmed, rising above earlier fresh lows after the latest Federal Reserve minutes contained hawkish signals. The January minutes hinted at a hawkish shift in policy with officials openly debating when to raise interest rates with unemployment flirting with its 6.5 per cent threshold. ‘Several’ officials wanted to clearly signal a ‘presumption’ to taper its monthly bond purchases by $10bn at each meeting this year. But a run of disappointing US data since the last Federal Reserve meeting has watered down some of the minutes’ hawkishness.
Euro
The euro moved to near seven-week highs against the US dollar and strengthened against sterling in front of PMI data that is expected to show another month of progress in the euro area’s important manufacturing and services industries. Analysts’ widely expect PMI surveys to hold firmly above the 50-mark which separates growth from contraction. The euro did surrender a portion of gains against the US currency after minutes from the Federal Reserve earlier policy meeting gave markets some unexpected hawkish signals.