Fed minutes signal split among board, more tense meetings ahead

At the turn of the year, the odds of an April hike from the Fed were relatively healthy. Not so now, however, as the minutes revealed a number of Fed members were anxious that lifting rates in April would show an inappropriate level of haste and urgency to tighten policy. Again, the Fed placed the blame on overseas financial risks as too severe a headwind to march interest rates higher. The minutes themselves stuck to the script outlined by Janet Yellen last week, as the board as a whole generally believe that external risks to the US economy will continue to abate and the Fed will gradually tighten policy further.

Fed priming markets for just two 25bps rate rises this year

As always though, there were dissenters among the voting board, as some officials highlighted the recent string of strong macroeconomic data (namely, inflation and labour market surveys), arguing that if this continues into the next few months, financial conditions would be consistent with higher interest rates. As odds of an April hike dwindled toward zero, the dollar weakened, easing slightly against most other currencies, with a lot of focus falling once again on EUR/USD, which continues to rise toward late 2015 highs of around 1.1475. An appreciation of the euro beyond this and a rise through 1.1600 would place the currency at the highest level against the dollar in 15 months.

ECB take focus today, with Draghi due to speak as well as March minutes

After what seems like a rather quiet spell, ECB President Mario Draghi is due to speak today and it’s likely he’ll comment on the recent strength of the euro against both sterling and the dollar. Earlier this week, Peter Praet, the ECB’s Chief Economist, warned that a stronger single currency damages the monetary transmission mechanism and reiterated that the ECB will act forcefully to counter disinflation in the euro area. It’s highly likely Draghi will follow suit today and lack of follow-through from the ECB President would surely send the euro to further fresh highs.

Today’s ECB minutes, due at 12:30 UK time, will reveal the bank’s thought process on their most recent easing policy. It’s unlikely we’ll be able to gauge their sentiment on future policy strategy from the release, but the discussion around their decision to extend QE and push rates further into negative territory will make interesting reading.

Another sharp Japanese Yen rally gives the Bank of Japan more sleepless nights

A new 18 month low in USD/JPY this morning will have the Bank of Japan concerned. The strengthening currency has left a large dent in equity markets, with the Nikkei 225 down 2% this week alone. The Bank of Japan has one of the most aggressive monetary easing policies in the world, a combination of very negative interest rates and mass asset purchases have sought to drive investors away from the domestic bond markets in search of higher returns – but the surety of value amid global financial uncertainty is dulling this effect. The Bank of Japan meet again in two weeks in what is likely to be a frustrating meeting for those on the board, who will debate how best to communicate their message to the markets.

Have a great day.