ECB opens the door

Euro was the strongest among major currencies Thursday morning after minutes from the most recent ECB meeting revealed a discussion investors have long been vying for.

The minutes show that policymakers considered removing their pledge to increase their bond buying program in June. Although they ultimately opted to keep their “easing bias,” this marks an important shift from the central bank.

Upbeat comments from ECB President Mario Draghi just last week had already caused quite a stir in financial markets. Stepping back from his typically cautious tone, Draghi noted that reflationary pressures may give policymakers room to remove some of their stimulus without tightening financial conditions. His comments sent the euro higher, and follow-up remarks from within the ECB failed to dampen euro bulls.

But officials continue to keep their cards close to the vest. “It was necessary to avoid signals that could trigger a premature tightening of financial conditions,” the minutes said. Policymakers are concerned that even “small and incremental” changes to the policy outlook could spook markets.

While officials recognize the increasing momentum of the euro area recovery, they continue to stress that underlying inflationary pressures remained subdued.

Weather forecasts from the Fed: cloudy?

Minutes from the Fed’s June meeting came in late Thursday, leaving the outlook for monetary policy even more foggy.

Policymakers were divided on when to slowly begin scaling back the balance sheet, and officials could not converge on the inflation outlook.

When the Fed raised rates in June, they kept their forecast for one more rate hike this year and three in 2018, but investors are far from convinced. Subdued inflation looms over the Eccles Building. The Fed’s preferred measure of inflation is running well below the 2% target, leaving investors with doubt over whether the Fed will be able to stick to the plan.

Data drip

The dollar fell Thursday morning after a disappointing report on private sector job creation in the US. ADP private payrolls added 158,000 jobs in June, below analyst estimates of 185,000. May’s print was also revised lower by 23 thousand jobs.

While missing analyst estimates may seem worrisome on the surface, we’re not ringing any alarm bells quite yet. This confirms that the US economy is getting close to full employment.

We would place far more emphasis on Friday’s nonfarm payrolls report – specifically looking at wages. Despite the US’s proximity to full employment, wage growth has been stubbornly low. This is a big concern for the Fed and the overall economic outlook, and if we see a surprise uptick this would leave room for the dollar to rally.

EURUSD: Euro higher after the minutes from the ECB’s latest meeting opened the door for scaling back their stimulus outlook.

GBPUSD: Sterling flat against the dollar, after PMI data yesterday highlighted falling momentum of the UK economy.

AUDUSD: Aussie dollar slightly weaker after a missile test launch in North Korea pushed investors out of riskier currency trades.

USDCAD: Canadian dollar trading flat against the USD as we wait for employment data out of both countries.

USDJPY: The yen flat against the dollar, balancing a weaker dollar with the growing political risks from neighboring North Korea.