Dollar pares gains as some Fed officials show caution on growth
* Graphic: World FX rates Link
By Karen Brettell
NEW YORK, Aug 17 (Reuters) - The U.S. dollar pared its gains on Wednesday after minutes from the Federal Reserve's July meeting showed that Fed officials are concerned the U.S. central bank could raise rates too far as part of its commitment to get inflation under control.
In a glimpse of the emerging debate at the central bank, "many" participants noted a risk that the Fed "could tighten the stance of policy by more than necessary to restore price stability," a fact that they said made sensitivity to incoming data all the more important, the minutes showed.
"Some participants at the Fed were noting that interest rate sensitive sectors had begun to show signs of slowing and that there was in the eyes of some participants a risk of overtightening," said Brian Daingerfield, head of G10 FX strategy at NatWest Markets in Stamford, Connecticut.
It comes after Fed Chairman Jerome Powell said at the July meeting that the impact of Fed rate increases to date is still building in the economy, and depending on how inflation responds in coming months that could allow the central bank to begin to slow the pace of rate increases.
"That combination I think is giving the minutes a little bit of a dovish feel relative to what we’ve heard from FOMC officials in the aftermath of the meeting,” said Daingerfield.
The dollar index =USD fell to 106.39 after the meeting minutes were released, before rebounding back to 106.55, up 0.09% on the day.
The size of the Fed’s next expected rate hike is expected to depend on consumer price inflation and jobs data for August, which will be released before its September meeting.
The odds of a 75 basis-point hike in September dropped to 40% after the meeting minutes, from 52% earlier on Wednesday, with a 50 basis-point hike now seen as a 60% probability. FEDWATCH
Looser financial conditions as benchmark 10-year Treasury yields hold below 3% and as the credit and stock markets improve has also increased speculation the Fed may need to be more aggressive in hiking rates to make an impact.
Retail sales data on Wednesday were solid, helping to reduce concerns about an economic slowdown.
"Everyone is focused on - well, will we really see the Fed be in a position where they need to deliver more massive rate hikes and can the economy handle it, and right now the economy looks like it can," said Edward Moya, senior market analyst at OANDA in New York.
The euro EUR=EBS gained 0.13% on the day against the dollar to $1.0185. The greenback gained 0.55% against the yen to 134.97. JPY=D3
The Australian dollar AUD=D3 fell 1.23% as concerns about Chinese demand for commodities including iron ore dented the appeal of the currency.
The New Zealand dollar NZD=D3 also dropped 0.98%, erasing earlier gains in volatile trading on what was likely profit-taking on the original move.
New Zealand's central bank on Wednesday delivered its seventh straight interest rate hike and signaled a more hawkish tightening path over coming months to rein in stubbornly high inflation, which briefly boosted the currency.
Sterling also faded after an initial jump on data showing that consumer price inflation in Britain rose to 10.1% in July, the highest level in 40 years.
The British pound GBP=D3 was last down 0.34% on the day at $1.2059.
Currency bid prices at 3:15PM (1915 GMT) Description
U.S. Close Pct Change
+106.8900 +106.3000 Euro/Dollar
+135.4950 +133.9100 Euro/Yen
+137.8700 +136.2700 Dollar/Swiss
+0.9485 Sterling/Dollar GBP=D3
+$1.2028 Dollar/Canadian CAD=D3
Additional reporting by Iain Withers in London Editing by Mark Potter
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.