Dollar falls after Fed minutes

By Vivianne Rodrigues

NEW YORK (BestGrowthStock) – The euro hit a two-month high on Wednesday and the U.S. dollar fell against the yen after the Federal Reserve’s minutes of its last meeting showed policy makers were concerned the U.S. recovery may be slowing.

The Federal Open Market Committee minutes weighed on the greenback which had fallen earlier in the day after data showed U.S. retail sales declined for a second straight month.

Fed officials revised down slightly their outlook for economic growth in the second half of the year, while the minutes said the committee would need to consider whether “further policy stimulus might become appropriate if the outlook were to worsen appreciably.

“The main point is that there is divided opinion within the Fed about how aggressively they should act as the economy slows further,” said Samarjit Shankar, managing director of global foreign exchange strategy at BNY Mellon in Boston.

“(The Fed) will not be averse to keeping interest rates low for an extended period,” which would hurt the dollar, he added.

Strong U.S. corporate earnings being released this week encouraged investors to seek higher-yielding currencies, including the euro, but have not helped the greenback as some investors see them as a lagging indicator of economic health.

Earlier in the session the dollar slipped after a weak June retail sales report which followed data on Tuesday showing a wider U.S. trade deficit in May.

The greenback slid 0.5 percent to 88.27 yen. Meanwhile, the European currency hit $1.2778, its highest since early May.

The euro pared some of its gains after the Fed minutes but was still above a session low of $1.2683 hit earlier on lingering concern about some euro zone countries’ debt woes. However, recent successful bond auctions in Portugal, Germany and Greece have eased some concerns.

Sterling soared to a 10-week high as better-than-expected UK employment data added to speculation the Bank of England may have to start thinking about raising interest rates.

Sterling rose 0.5 percent to $1.5256 after earlier hitting its highest level since May after better-than-expected employment data.

EARNINGS, TECHNICAL BOOST EURO

While U.S. data has been on the soft side, U.S. second quarter corporate earnings have been surprisingly strong so far, and that’s also helped risk appetite lately.

The next target for euro/dollar was the $1.30 area, said Roberto Mialich, currency strategist at Unicredit in Milan.

Others said the next target was at $1.2780, the 50 percent retracement of the euro’s fall from mid-April to the June low.

Richard Ross, technical strategist at Auerbach Grayson in New York, said breaks through $1.27 and then $1.2760 brought in new buyers and said momentum may carry it to $1.28.

“Markets like round numbers and 1.28 is a good psychological one, even though it is not a particularly key technical indicator,” he said. “But certainly, a lot of people would like to see that one go.”

With the U.S. 10-year Treasury yielding barely more than 3.0 percent, traders also cited a growing demand for higher-yielding assets and growth-related currencies.

“If growth is slowing, yields are likely to fall, so people want to lock in higher yields now,” said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York.

“Bottom line…(the Fed) is not hawkish enough to reverse the negative sentiment toward the dollar and it is not dovish enough to heighten expectations for a resumption of credit easing.”

(Additional reporting by Steven C. Johnson, Wanfeng Zhou and Nick Olivari in New York)

Dollar falls after Fed minutes