Dollar traders were looking forward to the first viable market-moving economic event for the week. After grinding through two sessions of questionable liquidity and geopolitical-driven price action, todays FOMC minutes promises to clarify the central banks reasoning behind heating up their inflation warning while ignoring the topical issues of heightened volatility in financial market and sub-prime defaults.
Wednesday mornings conservative price action across the majors was typical of pre-release jitters. Holding close to its multi-year high, EURUSD pulled back to trade in a 30-point range above 1.3415. Putting in a slow dollar bid, USDCHF extended its reversal off of 1.2140 with an eventual high around 1.2220. Elsewhere, the dollar made a 50-point advance against the yen that stalled out after a failed attempt at overtaking 119.50 resistance. Finally, GBPUSD jumped on preliminary reports suggesting the British government will wave taxes on repatriated funds for domestic firms foreign revenues. The pound rallied 110 points against the dollar to 1.9820 through the Asian session.
Up until Wednesday morning, the dollar has traded off of technicals and geopolitical surprises. However, events scheduled for this afternoon look to put the benchmark currency back on its fundamental path. Offering up a modest appetizer, Richmond Federal Reserve President Jeffrey Lacker is penciled in to speak on inflation at 16:45 GMT while Fed Governor Ben Bernanke tackles market discipline only 15 minutes later. While both of these speeches may be interesting, the short attention span of the currency market suggests they will be ignored in favor of the FOMC minutes of the March 20th and 21st meeting. Though there was obviously no change in interest rates (or even a change in language that provided a clear path to a hike or cut in the coming months), a few subtle alterations to the official statement require explanation. In the weeks leading up to the policy meeting, the public outcry over the waning health of the housing and manufacturing sectors were conflicting with a modest acceleration in inflation. Despite these concerns though, the policy group only upped the ante on its inflation warning with no word on the increase in sub-prime defaults.
Though the minutes are looming large on the markets radar, a few other indicators should not be overlooked. Offering another look into the struggling housing market, MBA mortgage applications for the week of April 6th fell 0.4 percent. This first time applications fell for four consecutive weeks since December of 2005. More foreboding was the IMFs revision to its US GDP outlook. Updated twice a year, the international monetary authority cut its initial 2.9 percent estimate for 2007 expansion to 2.2 percent. This would mark the slowest pace of growth in five years for the worlds largest economy if met. Furthermore, according to the IMFs numbers, 2007 may be the first year that Japan reports a quicker pace of growth than the US since 1991. On the other hand, the group is not looking for a hard landing. The fund has projected a rebound to 2.8 percent for 2008 on the back of consumer spending and strong corporate revenues.
The start of earnings season didnt rally the troops like many equities analysts had thought it would. By 15:00 GMT, the NASDAQ Composite was pacing broad declines with a 0.67 percent drop to 2,460.90. The Dow fell in line with its own 0.66 percent fall to 12,490.55 while the S&P 500 lost 0.53 percent to 1,440.74. Alcoa, the symbolic starting gun for first quarter earnings, failed to put the bulls in charge despite strong numbers of its own. Shares of the blue-chip advanced 0.9 percent to $35.21 after the firm reported a 9 percent rise in profits and offered a strong outlook for the coming year. Picking up waning M&A activity, word has circulated that NASDAQ Stock Market is in talks to buy the Philadelphia Stock Exchange in a deal estimated to be worth between $250 and $300 million. NASDAQ Shares were trading 0.5 percent or $0.16 higher at $29.79 on the news.
Like the dollar, treasuries were little moved ahead of all the Fed activity. The ten-year note was quoted 3/32nds above its open at 99-11 by 15:00 GMT with a yield of 4.706 after shedding a basis point. Bonds were 4/32nds higher at 97-23 as yields slipped a basis point to 4.895.