Dollar advances as Fed minutes open door to future taper talks

NEW YORK: The dollar gained ground on Wednesday, snapping a four-day losing streak and bouncing off a multi-month low following the release of the minutes from the Fed's most recent monetary policy meeting.

In those minutes, a number of members of the U.S. Federal Reserve's Federal Open Market Committee (FOMC) said that should the economic recovery continue to gain momentum, it would be appropriate "at some point" to discuss tightening its accommodative policy, giving the greenback a boost.

"The big thing from the Fed minutes is the mention of beginning of taper talks," said Chris Gaffney, president of world markets at TIAA Bank in St. Louis. "Any mention of the Fed stepping in and raising rates will have a major impact on the dollar."

Still, the minutes were from a meeting that occurred before the release of key economic data, which showed further weakness in the labor market and price spikes driven by a supply/demand imbalance.

Since then, the Fed has repeatedly offered assurances that surging prices in the near term will not translate to long-term inflation.

"The Fed is generally singing from the same song sheet, stating that inflation will be transitory," Gaffney added. "In general, they've done a good job of keeping a pretty unified front."

The dollar also benefited from a broad risk-off sentiment, which saw the major U.S stock indexes slide and cryptocurrencies plunge.

"When we saw the big move away from bitcoin, it was an indication that investors are moving away from risk assets, and that benefits the dollar," Gaffney said. "It's an indication of flight to safety."

Bitcoin briefly plunged to its lowest level since January in the wake of China's decision to ban financial and payment institutions from providing digital currency services, but pared its losses after some of its prominent backers reiterated their support.

Rival cryptocurrency ethereum was last down 22per cent at US$2,623.

Gaffney believes digital currency investors should gird their loins for more of the same.

"Crypto markets were ripe for a sell-off with the run-up we’ve seen," he said. "I expect to see more of the wild roller-coaster ride that we’ve seen going forward."

U.S. Treasury yields hit session highs in the wake of the Fed minutes' release.

The dollar index, which measures the greenback against a basket of world currencies, was last up 0.52per cent at 90.254.

Meanwhile, pricing pressures were being felt elsewhere. UK inflation more than doubled in April to 1.5per cent from a month earlier, sparking similar concerns over longer-term inflation.

The British pound eased 0.58per cent against the dollar to US$1.4106.

Canada also released its latest inflation data, which showed consumer prices jumping to an annual rate of 3.4per cent.

The greenback gained 0.64per cent against the Canadian dollar to US$1.214, but was still hovering near its weakest level since May 2015.

The euro reversed course after touching its highest level against the dollar since the beginning of January, falling 0.5per cent to US$1.2164.

Against the Japanese yen, the dollar rose 0.25per cent to 109.26.

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Currency bid prices at 3:07PM (1907 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

90.2540 89.8020 +0.52per cent 0.303per cent +90.2900 +89.6860

Euro/Dollar

US$1.2164 US$1.2224 -0.50per cent +0.00per cent +US$1.2245 +US$1.2160

Dollar/Yen

109.2600 108.9050 +0.25per cent +0.00per cent +109.3300 +108.5750

Euro/Yen

132.89 133.10 -0.16per cent +0.00per cent +133.4400 +132.6500

Dollar/Swiss

0.9045 0.8977 +0.76per cent +0.00per cent +0.9047 +0.8970

Sterling/Dollar

US$1.4106 US$1.4189 -0.58per cent +0.00per cent +US$1.4200 +US$1.4100

Dollar/Canadian

1.2138 1.2061 +0.64per cent +0.00per cent +1.2143 +1.2053

Aussie/Dollar

US$0.7717 US$0.7791 -0.97per cent +0.00per cent +US$0.7797 +US$0.7711

Euro/Swiss

1.1003 1.0970 +0.30per cent +0.00per cent +1.1027 +1.0968

Euro/Sterling

0.8620 0.8612 +0.09per cent +0.00per cent +0.8643 +0.8610

NZ

Dollar/Dollar US$0.7155 US$0.7239 -1.16per cent +0.00per cent +US$0.7246 +US$0.7153

Dollar/Norway

8.3250 8.2155 +1.28per cent +0.00per cent +8.3390 +8.2095

Euro/Norway

10.1286 10.0470 +0.81per cent +0.00per cent +10.1518 +10.0386

Dollar/Sweden

8.3669 8.2793 +0.60per cent +0.00per cent +8.3715 +8.2671

Euro/Sweden

10.1791 10.1181 +0.60per cent +0.00per cent +10.1872 +10.1201

(Reporting by Stephen Culp; Additional reporting by Julien Ponthus; Editing by Jan Harvey and Jonathan Oatis)