Forex – Dollar Flat as Fed Minutes Add Weight to Expectations for Fed Pause

Investing.com – The U.S. dollar was flat against its rivals Thursday as the Federal Reserve minutes did little to dent investor expectations for a December rate hike, but added to expectations that interest rates were close to neutral.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.04% to 94.72.

“Members continued to expect that further gradual increases in the target range for the federal funds rate would be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term,” the Fed’s minutes showed.

But they also added weight to investor expectations that the Federal Reserve’s benchmark rate was inching closer to neutral.

“A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations,” the minutes read.

Fed Chairman Jerome Powell said Wednesday that interest rates were “just below” neutral, dampening the optimism for a more aggressive rate-hike cycle.

Beyond monetary policy, mixed U.S. economic data showing ongoing strength in consumer spending, but a slowdown inflation kept a lid on gains in the greenback.

The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 1.8% in the 12 months through October.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 0.6% last month, the Commerce Department said on Monday.

Elsewhere the dollar was supported by weakness in sterling as investors continued to fret about the outcome of the UK parliament’s vote on a Brexit deal slated for Dec. 11.

GBP/USD fell 0.39% to $1.2778, EUR/USD rose 0.15% to $1.1384.

USD/JPY fell 0.22% to Y113.45, USD/CAD rose 0.02% C$1.3279.

— Reuters contributed to this report.