The US dollar spiked lower following the release of the minutes from the Federal Open Market Committee’s (FOMC) September meeting, as some members indicated that they were open to expanding MBS purchases, which runs contrary to speculation that the central bank was looking to put an end to their liquidity and lending facilities in the near-term.
[I]Source: FXtrek IntelliCharts[/I]
Regarding the outlook, FOMC members expressed uncertainty on how the economy would fair without government aid, as consumers were likely to remain cautious and they saw “substantial” slack in the labor market in coming years. Nevertheless, many members raised their economic projections for the second half of the year, though exact forecasts were not published yet, while the staff economic outlook showed projections for unemployment to fall to 9.25 percent by the end of 2010, and 8 percent by the end of 2011.
Additionally, inflation does not appear to be a big concern of the Federal Reserve, as staff economists anticipate that core inflation will slow over the next two years, which is interesting because the annual rate of core CPI is already at the lowest level since February 2004 at 1.4 percent.
Fed fund futures have shifted to price in the central bank’s first rate increase to June 2010, from April 2010 on Monday, which adds additional weight to dollar weakness. That said, we often see knee-jerk reactions in the FX markets reverse later on, so traders should be cautious.
[I]Source: FXtrek IntelliCharts[/I]
View the release in its entirety on the Federal Reserve website.