US Dollar Rebounds on Fed Minutes, G20 Summit Optimism

The US dollar rebounded at the end of the trading week after new Federal Reserve minutes show the central bank favors raising interest rates in December and beyond. With investors paying close attention to this weekend’s G20 summit, all eyes are on President Donald Trump’s critical meeting with Chinese President Xi Jinping. Wall Street is trying to be optimistic, but is a new trade agreement hopeless?

According to minutes from this month’s Federal Open Market Committee (FOMC) policy meeting, all of the board members agreed with raising rates “fairly soon.” This boosted the greenback it is almost certain that a December rate hike will happen.

Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon, if incoming information on the labor market and inflation was in line with or stronger than their current expectations.

This gave the markets a sigh of relief because Chair Jerome Powell said in a dovish speech that rates remain “low by historical standards” and the range estimates would stay “neutral for the economy” that is “neither speeding up nor slowing down growth.”
The minutes also revealed that monetary policymakers are considering modifying “further gradual increases” in the target range for the federal funds rate. This would allow the Eccles Building to be a bit more flexible when it comes to policymaking.
The current benchmark lending rate is 2.0% to 2.25%.

Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook. Such a change would help to convey the committee’s flexible approach.

Despite a hawkish Fed, financial analysts forecast a weaker dollar in the coming years. The latest estimate comes from Morgan Stanley, in which the Wall Street titan believes the buck will depreciate through 2020. And the culprit is not the US-China trade war, but rather ballooning national debt.
Hans Redeker, Morgan Stanley’s global head of FX strategy, told CNBC:

When you create debt, you need to find somebody to buy it. And that means you need to look into the global availability of capital and … global availability of capital is in sharp decline.

On the topic of trade, Presidents Trump and Xi will come face to face at the G20 summit. Investors are hoping that there could be improvements in the ongoing trade struggle, but the markets already shrugged their shoulders this week when it was reported that White House trade advisor Peter Navarro would attend the meeting.
The USD/CAD currency pair rose 0.17% to 1.3306, from an opening of 1.3282, at 15:18 GMT on Friday. The EUR/USD advanced 0.65% to 1.1320, from an opening of 1.1396.

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