In the last 24 hours, dollar traders have taken in a FOMC minutes that requires some degree of interpretation and subsequent reports of economic growth and inflation. After all of the economic pieces fell into place to offer a complete view of where policy may go for the remainder of the year, the path remained muddled with analysts firmly divided between a hike and a firm halt.
In spot action today, the majors were little put off of their previous trends after the release of US data. The euro held its range against the greenback between a solid resistance of 1.2855 and a still new support of 1.2810. The same congestion pattern was dominating the USDCHF. A 45-point spread was held in place by multiple tests of 1.2310 and 1.2265. In the GBPUSD, cross currency bidding was moving the pair above resistance in place around 1.9020. From the low set in the early Asian session, GBPUSD steadily rose 90 points to 1.9060. Finally, Japanese yen selling benefited the USDJPY pair, which advanced 65 points from yesterdays low to 117.15.
When Asian and European traders joined the market in the overnight session, the FOMC meeting minutes was still burning its imprint in the dollar. The first official release accompanying the decision to stay rates after 17 consecutive hikes, the wording of the document was eagerly awaited for interpretation. Many expected the shift in rate policy to be reflected in the wording of the report by taking a less aggressive stance on inflation and putting a spotlight on economic growth concerns. While slowing growth was given greater importance, concerns over price growth were definitely not played down. The text showed the voting board members felt the decision was a close call?[and]?additional firming could well be needed. The threat of price growth beyond what the central bank would tolerate seems so great that all members of the committee agreed the minutes should make clear that inflation risks remained dominate and the August decision to pass on a rate shift did not necessarily negate future tightening. Moving on to the data that hit the newswires this morning, revisions of second quarter GDP and the inflation figures derived from it offered little. Annualized GDP grew more than the initially reported by 2.9%. However, this rate of expansion was still far short of the previous three months 5.6% performance and was even short of the 3.0% market expectations for the revision. Within the data, one noticeably worse component was home construction, which dropped a faster than expected 9.8% for the biggest decline in 11 years. This is especially distressing for the US economy given the poor performance of last weeks new and existing home sales for July. However, countering somewhat the degradation of the main source of consumer wealth, aggregate income over the same three months received a $100 billion upward revision. This will further add to speculation of if and when the steady decline in housing will begin to distinctly constrict consumer spending. For the inflation hawks, the revisions offered little to shift expectations. Core personal consumption expenditure, the Feds preferred measure of inflation, ticked slightly lower to 2.8%. On the other hand, the adjusted figure was still considerably faster than the 2.1% rate in the opening months. Finally, released in the background, the ADP employment change indicator reported 107,000 new hires for the month of August. ADPs indicator has been inconsistent with the NFPs over the past few months, coming in way too high in June and then too low in July. More reliably, an auction of derivatives tied to the Friday NFP release on the Chicago Mercantile Exchange weighed in with an implied 120,300 figure.
Equities were mixed by midi-session even as crude prices drop below $69 per barrel and a report showed the economy grew faster than originally expected in the second quarter. The Nasdaq Composite was the only index trading solidly in the green by 15:45 GMT with a 0.4% advance to 2,179.92. The Dow Composite was only marginally higher at 11,373.70 while the SP 500 Index gave its early advance to trek 0.1% down at 1,303.47. Stealing the headlines today, Costco Wholesale, the bulk retailer, lowered its earnings forecast citing higher gasoline prices and stronger competition. Shares were down $2.44 or 5.0% to $46.81. Another company moving on the news was Altria Group Inc. which announced a 7.5% increase in its quarterly dividend to $0.86 per share. Shares lost the 0.7% advance earlier in the session to remain unchanged from yesterday close at $83.53.
Government debt markets were little affected by todays backwards looking growth numbers as traders awaited Fridays NFP report. The ten-year paper was 3/32nds higher at 100 27/32nds with yields slipping a basis point to 4.77 by 15:45 GMT. Longer-term bonds were similarly higher 3/32nds of face at 93 17/32nds while loosing a basis point in yields to 4.92.
