Dollar lower as Fed hints at tapering amid inflation worries

by Jonathan Adams

In the minutes for the FOMC’s meeting released on Wednesday, policymakers suggested they would start scaling back asset purchases if the U.S. continues its economic recovery

The dollar was down on Thursday morning in Asia as the U.S. Federal Reserve meeting minutes revealed that policymakers suggested a slowdown of bond purchase due to a sign of accelerating inflation.

The U.S. Dollar Index edged down 0.08% to 90.123 by 3:53 AM GMT.

The USD/JPY pair was down 0.07% to 109.14 as April’s trade data released earlier in the day exceeded expectations. Exports grew 38.0% year-on-year (YOY), imports rose 12.8% year-on-year and the trade balance gained 225.3 billion.

The AUD/USD pair inched up 0.17% to 0.7740. In New Zealand, the NZD/USD pair inched up 0.13% to 0.7176.

The USD/CNY pair edged up 0.07% to 6.4385, with China releasing the loan prime rate earlier in the day.

The GBP/USD pair edged up 0.01% to 1.4114.

In the minutes for the Federal Open Market Committee (FOMC)’s latest meeting released on Wednesday, several policymakers suggested that they would start scaling back asset purchases “at some point” if the U.S. continues its economic recovery.

Investors were caught by surprise as Fed Chairman Jerome Powell and other Fed officials had reiterated that the Fed would stick to its current dovish policy as any rising inflation would be temporary.

The minutes contained wording that appears to seek to start the discussion on tapering at an earlier timing than expected. If the next jobs data due on Jun. 3 is strong, markets will start bracing for the Fed making a specific mention on tapering at its next meeting in June, Takafumi Yamawaki, head of fixed income research at JPMorgan (NYSE:JPM), told Reuters.

Other investors agreed with Yamawaki.

It is worth noting that the FOMC minutes predate the latest CPI and payroll/earnings numbers, so the fears of the minority on the FOMC are likely to have become a little more acute since the April meeting, Tapas Strickland, RBA’s director of economics and markets, told Reuters.

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