The Federal Open Market Committee released the minutes of its latest policy meeting, revealing that many policy makers thought that the time for an interest rate hike approaches. Yet the market considered the minutest to be somewhat dovish, leading to a big drop of the dollar versus the euro. There are still analysts who believe that a September hike remains possible, but it is important to remember that the FOMC meeting had occurred before the collapse of the Chinese stock market, therefore the report did not take into account that important event.
The inflation report was not supportive for the greenback as it showed slower growth than economists had anticipated.
CPI rose 0.1% on a seasonally adjusted basis in July, slowing from the previous month’s growth of 0.3% and missing the average analysts’ projection of 0.2%. Core CPI rose at the same rate, trailing forecasts as well. (Event A on the chart.)
Crude oil inventories swelled by 2.6 million barrels last week, surprising experts who had expected the stockpiles to shrink by 0.6 million. The reserve declined 1.7 million barrel during the preceding week. Total motor gasoline inventories dropped by 2.7 million and are in the middle of the average range. (Event B on the chart.)
FOMC released minutes of its July policy meeting. The report said on the topic of timing for monetary tightening:
During their discussion of economic conditions and monetary policy, participants mentioned a number of considerations associated with the timing and pace of policy normalization. Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.
Yet it also added:
However, some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term and that the inflation outlook thus might not soon meet one of the conditions established by the Committee for initiating a firming of policy.
On the whole, the language of the minutes was somewhat confusing, giving no clear edge either to hawks or to doves. (Event C on the chart.)
Yesterday, a report on housing starts and building permits in July was released. Housing starts were basically unchanged at the seasonally adjusted annual rate of 1.21 million, in line with expectations and at the highest level since October 2007. Building permits edged down from 1.34 million to 1.12 million, missing the median forecast of 1.23 million. (Not shown on the chart.)
If you have any comments on the recent EUR/USD action, please reply using the form below.