Dollar Shows Strength, Traders Banking on Fed Reversing Rate Policy
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In the currency market, the dollar rallied against the euro. Late Wednesday, the euro was trading at $1.5823 vs. $1.5899 on Tuesday.
Traders were scrutinizing the release of the minutes from the last Fed meeting, searching for the future direction of interest rates, and apparently decided from the mixed signals that the Fed is about to turn hawkish on inflation.
As Dow Jones Marketwatch reported: “Some members said the Fed had aggressively cut rates to 2% to guard against downside risks to growth and now that these risks had ‘diminished’ that ‘some firming in policy would be appropriate very soon.’
“But other FOMC members said financial conditions were still too fragile and borrowing costs were higher for consumers than before the Fed starting cutting rates last fall.
“The minutes show a clear divide and intense debate between one camp that favored rate hikes sooner rather than later and others who believed the outlook was still uncertain at best.”
Those who think the Fed will have to raise rates got support from the day’s most important numbers. The Labor Department reported that the consumer price index rose by 1.1% in June. It was the biggest monthly increase since Hurricane Katrina nearly three years ago, and well above economists’ expectations for a 0.8% gain.
CPI was led higher by a 6.6% jump in energy prices and a 0.8% increase in food prices.
“The Fed will face an ongoing inflation threat that will eventually require a policy response that we continue to expect before year-end,” wrote Michael Englund, chief economist for Action Economics.
Source: Dollar Shows Strength, Traders Banking on Fed Reversing Rate Policy
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Tags: Doug Casey, euro, Federal Reserve, U.S. interest rates, US dollar, US inflationAbout the Author
Doug Casey is a contrarian investor, sought-after public speaker and author of several books. His work "Crisis Investing" held the position of # 1 bestseller on the New York Times list for 26 consecutive weeks. Doug's unusual views on the economy - and just about everything else - have gained a huge following in the investment community, and it certainly helps that his stock recommendations of undervalued junior exploration companies have made his subscribers millions. Now in its 27th year, Doug's monthly newsletter, the International Speculator, is one of the most established and esteemed publications on gold, silver and other natural resource investments. Together with the Casey Energy Speculator, it covers a broad range of carefully selected stocks with the very real potential of double- and triple-digit returns within 12 to 24 months.