Written by Steven Dooley and Shier Lee Lim
Fed minutes less hawkish than feared
The greenback was lower this morning after the US Federal Reserve minutes signaled that while the US central bank still remains some distance from cutting rates, policymakers are also worried about keeping rates too high.
The minutes from the January meeting continued to reiterate that incoming data would be critical and the Fed needs to be confident that inflation is sustainably headed back to its 2.0% target.
However, the minutes were less hawkish than the market feared, and the USD fell after the announcement.
The greenback had earlier been stronger, and the post-Fed weakness saw the USD broadly flat for the session.
The euro and British pound were moderately higher, while the Japanese yen eased.
The NZ dollar remains one of the best performers, up 0.2% ahead of next week’s Reserve Bank of New Zealand decision.
The AUD/USD was down 0.1% after yesterday’s wage price index data – at 4.2% in annual terms – was broadly in line with expectations. Markets saw the data as not hot enough to force the Reserve Bank of Australia to raise interest rates. The USD/SGD and USD/CNH were broadly flat.
Weekly jobless claims key for Fed outlook
Last week, US continuing claims rose and while initial claims declined somewhat, completely reversing the previous week’s reduction. Both claims indicators increased as a result of seasonal adjustments, and headline claims figures will likely rise until the end of Q1.
A little increase in continuing claims is in line with a rise in the unemployment rate and a slowdown in employment growth.
Despite headlines in the business press, we do not, however, observe any indications of a large-scale layoff. As such, solid results from the US labor market might keep the USD well supported.
Bank of Korea due
In a busy week for Asian central banks, Bank of Korea is due today. We anticipate a consensus neutral-to-dovish statement from the Bank of Korea (BOK). We anticipate the BOK to decrease in its report on the economic outlook. Its projected CPI inflation for 2024 dropped from 2.6% to 2.5% year over year, mostly due to a deflation of core prices and a slowdown in energy price inflation.
Nonetheless, the BOK is probably going to stick with its 2.1% GDP growth estimate for 2024 since it believes that robust exports will somewhat make up for lower construction and consumption. We anticipate Governor Rhee to restate his belief that rate decreases are unrealistic at this time because inflation is still higher than the BOK’s 2% objective during the news conference that follows the meeting.
As a result, we anticipate that neither the policy decision nor the forward guidance from the February meeting will be significant. However, the BOK’s apparent lower adjustments to its inflation outlook should signal a gradual shift in its emphasis from inflation to growth and financial stability.
We remain positive on the KRW. Why? First, a sustained increase in electronic exports, which should guarantee that the export recovery is more stable; and second, a restoration of equity flows, particularly given the low level of foreign ownership.
Aussie, kiwi remain near highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 19 – 23 February
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
