The market is anticipating the minutes of the FOMC meeting which is expected to open up the prospect of a rate hike this year. US dollar down despite positive ADP data.
The US dollar fell from a two-week high ahead of the release of the minutes for the FOMC meeting held late last year. In the trading session Wednesday (05/January) tonight, the US Dollar Index slipped 0.38% to 95.9.
"The Fed's minutes will give a good color to the thinking that they (market participants -ed) expect. In addition, there are also argumentative questions about the Fed's policy; namely about how many times to increase (interest rates), how fast the tapering, and balance sheet reduction," said John Marley, analyst at Forexxtra.
The minutes of the Fed's meeting are also expected to underscore the latest sensitivity of central bank officials regarding inflation and readiness to act. The market's current outlook for rate hikes is a quarter point in March and a full point in May.
"If tapering had ended a few months ago, now we can think that the FOMC will raise interest rates. Especially with the US unemployment rate not far above the Fed's long-term target, as well as core and headline inflation which are also well above expectations. ," wrote the Standard Chartered team of analysts quoted by Reuters.
Reinforcing current market expectations, Minneapolis Fed President Neil Kahskari said two rate hikes this year were needed to offset rising inflation. This statement contradicts his usual dovish views. Previously, Kaskhari had mentioned that the Fed must keep interest rates in the range of zero until at least 2024.
December ADP Employment Change Increases
Despite expectations for the Fed, the US ADP Employment Change data tonight failed to provide support for the strengthening of the Dollar. The market shrugged off ADP Employment Change growth of 807K in December, although the figure was higher than expectations of 375k.
According to Nela Rihardson, ADP Chief Economist, the increase in US private sector growth was due to the fading effect of the Delta variant, and the lack of significant effects from the Omicron variant.
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