FOMC Minutes Eyed As USD Stages Small Rebound

Will Fed Minutes Have Same Impact Ahead of Powell Appointment?

It’s been a relatively quiet start to the new year in financial markets but with a number of notable economic events lined up over the coming days, things may start to pick up.

We have a number of key pieces of economic data being released over the next few days, most notably the jobs report on Friday, while the minutes from the December Federal Reserve meeting will also be picked apart later on today. It will be interesting to see how traders respond to the minutes given next month’s change of leadership and the impact this could have on policy direction going forward.

While Jerome Powell is widely regarded as representing continuity within the Fed and is perceived to be slightly more hawkish than current Chair Janet Yellen, the dollar has come under renewed pressure over the last few weeks and only shorter term yields rose last year, despite the central bank raising interest rates three times and signalling three more in 2018. It will be interesting to see how worries some policy makers are becoming about the lack of inflation and what impact investors see this having on the rate path.

PMIs Also Important on Wednesday

While the bulk of the economic releases will come over the next couple of days, we will get the ISM manufacturing PMI today, which is expected to fall slightly to 58.1. While we are seeing a small rebound in the greenback today, given the negative bias that appears to be building here, I wonder how vulnerable it will be once again to a weaker December reading.

The pound is coming off its highs against the dollar this morning, having hit 1.36 in the last couple of days for the first time since September. While this has primarily been driven by what currently appears to be a dead cat bounce in the dollar, the softer construction PMI for the UK this morning – coming after an also soft manufacturing PMI on Tuesday – is likely not helping the pair as it closes in on post-Brexit referendum highs.

GBP/USD Daily Chart


Bitcoin Unusually Stable Possibly Signalling Cautious Sentiment

It’s been a rather timid session for Bitcoin so far today, which is very unusual for the cryptocurrency. Bitcoin started the session on the front foot but has struggled to hold onto its gains, a possible result of the pre-holiday season sell-off which may have weakened sentiment towards it from a speculator standpoint. This is not necessarily a bad thing for Bitcoin or the rest of the cryptocurrency market.

Bitcoin (CME) Daily Chart

Bitcoin Chart

Bitcoin has consolidated since the sell-off, albeit while maintaining far more volatility than most other instruments and this festive period hangover may continue if people fear another sharp move lower. I think we’re in for another wild year when it comes to Bitcoin and while prices could easily surpass last year’s highs and possibly by a substantial amount, the sell-off was a reminder that the downside can be as, or more, aggressive that the upside which may in the near term lead to more gradual and cautious rallies.

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