US Dollar Makes U-Turn

meeting minutesThe US dollar had all but lost its earlier gains by midday in New York. Initially the dollar had rallied on the news of a wider-than-expected trade deficit in Japan, increasing demand for the US currency as investors looked for a safe haven. After the dollar rallied to $1.2446, a gain of 0.2%, it almost instantly fell as speculation began to mount that the Federal Reserve would take action – most likely in the form of quantitative easing.

Before the trade deficit announcement investors had been slowly moving towards the idea that there would not be any further stimulus in the immediate future. This line of thought was aided by increased house sales last month. The central bank is now expected to begin a search for bonds worthy of purchasing in its almost inevitable next round of quantitative easing.

By 11am the dollar had lost most its earlier gains and sat at $1.2475, slightly up on its $1.2488 – a six week low. The minutes for the Federal Reserve’s meeting held over the 31st of July and the 1st of August are due to be released today. The minutes will be a massive focal point for the day as any signs of QE from the central bank will cause the US dollar to plummet, pulling the rug out from under the feet of the investors who have used the dollar as a safe investment vehicle.

One of the key items that investors will be looking for is the current unemployment rate which has been over or equal to 8% for more than 36 months straight now. It is widely thought that the Federal Reserve will now need to make a move to help get it back on track – regardless of the better-than-expected job data released a few weeks ago.

Should the dollar decline we can expect to see the Yen rise as investors jump ship, massively increasing demand.