FOMC’s fear of a strong dollar drives greenback lower
New York (Oct 8) The U.S. dollar turned lower against rivals Wednesday afternoon after the FOMC released minutes from its September meeting, revealing that members raised concerns that a one-two punch of a strong dollar and stagnant growth abroad could impede U.S. growth.
The closely followed central bank minutes also showed that several Fed officials wanted to remove language indicating that short-term interest rates would likely remain low “for a considerable time,” but held off in part because of concern that the market would misinterpret it as a policy shift.
Worries about tepid growth in Europe and Japan could relieve pressure on the Fed to raise rates sooner rather than later but already have been weighing on the greenback.
The ICE U.S. Dollar Index DXY, -0.46% , a measure of the greenback’s strength against a basket of six rivals, was down 2 basis points at 85.8600 Wednesday, compared to 85.6720 Tuesday evening.
After hitting a three-week low late Tuesday, the dollar USDJPY, +0.07% recovered against the yen, trading at 108.25 yen Wednesday morning, up from ¥107.83 Tuesday evening.
The euro EURUSD, +0.57% gained against the dollar after the minutes, trading at $1.2727 Wednesday, compared to $1.2683 Tuesday evening, extending gains that analysts say are the result of a correction following a large decline in the euro-dollar pair Friday.
Analysts from Bank of America Merrill Lynch said the dollar remains at risk of a continued near-term correction against the yen and euro. Despite this, weakness in the greenback Wednesday should be seen as a buying opportunity.