US Dollar Rises on Minutes, Risk-on Amid Stronger CNY Manufacturing PMI - 22.8.2013

FOMC Minutes release of the meeting on the 30-31 July revealed that the members recognize labor improvement and that inflation could pose risks on financial stability. Also, the Commitee stated that is ready to change “the pace of its purchases to maintain appropriate policy accommodation”. That meeting was before unemployment rate drop to 7.4%, and that further increased expectations that the asset purchases would reduce in September meeting.

The US dollar strengthened after the release of FOMC minutes since the market participants were more convinced that the FED would slow down the pace of bond buying, likely to tighten its monetary policy for the first time since July 2007. Again the FED reassured that the other tool for performing monetary policy, the interest rate, would remain at record low at 0-0.25% for as long as unemployment rate is above 6.5% and inflation projection for 1-2 years no more than 2.5%. The US dollar index rose to resistance 81.49 maintaining an upside bias after drawing a support line at 2-month low around 80.72.

The Euro remained under selling pressure against the greenback retreating to 1.3330, while on Tuesday trading inched above upper level of the 1.3414/1.2755 longer term range but then quickly retreating, creating the what is called in technical terms “bull trap”.

In Asian trading, equity indices started with losses as risk appetite worsened due to minutes revealing that the FED is going to cut stimulus should further signs of improvement appear in the US economy. However, Asian stocks rebounded due to HSBC Flash Manufacturing PMI rising more than projected and above 50 mark for the first time since April, lifting risk appetite. The USDJPY was underpinned by both the increasing expectations that FED would tighten stimulus and the improved Manufacturing PMI for China, advancing to 98.31 from 96.90, ahead of key resistance at 98.60.