Dollar Awaits Fed Minutes Ahead of Thanksgiving Holiday

USD to receive boost from December rate hike expectations

The USD rally that started with the shock result of the U.S. election was not able to get traction this week. The dollar has recovered some ground before the Thanksgiving holiday on Thursday. Fed speakers and president-elect Trump infrastructure spending have boosted the probability of an interest rate hike in December.

The Federal Open Market Committee (FOMC) minutes from the November 1–2 meeting will be published Wednesday, November 23 at 2:00 pm EST. Traders will be looking for confirmation of comments from Chair Janet Yellen and other policy members that have hinted strongly at a December rate hike. The U.S. central bank has kept rates unchanged in 2016 after making only one adjustment in 2015.

Inflation data has improved and is forecasted to be higher if Trump’s plans to boost economic growth are put into effect easing the burden on the Fed. December will mark one of the last times when central banks dictate the pace of the market with a host of monetary policies to be launched.

The EUR/USD has gained 0.162 percent in the last 24 hours. The single currency is trading at 1.1618 as the USD is recouping the losses form the start to the week. The dollar is advancing on the back of a higher than 90 percent probability of a December rate hike by the Fed as per the Fed’s funds future prices. Comments from Fed members signalling action from the central bank have been popping up everywhere. The reflation expectations after Trump was the victor of the U.S. elections, have also driven expectations of multiple rate hikes in 2017.

The EUR appreciated slightly on Tuesday ahead of the release of the FOMC meeting minutes on Wednesday. The notes from the monetary policy meeting in November are heavily anticipated as traders will scan them for clues for next month’s meeting. The November 1 and 2 FOMC was a subdued affair given the proximity to the U.S. presidential elections, but it will be interesting to see how much were political risk Fed members were considering now that we know the outcome of that election.

Energy prices lost 1.467 percent in the last 24 hours. West Texas is trading at $47.07 as the Organization of the Petroleum Exporting Countries (OPEC) meeting at the end of November continues to drive the price of oil. After managing to stop the free fall of energy prices at the beginning of the year the organization members have not been able to agree on much, which is why the Algiers summit surprised energy observers with a tentative agreement for a production cut. The road from Algiers to the end of the year meeting in Vienna has been fraught with twists and turns. Iran was already a known “supporter” that declined to participate, but the second largest producer Iraq emerged as a big question mark as they are seeking an exemption.

The OPEC agreement could pave the way to a larger global production cut as Russia and other large producers have already hinted at the need for cooperation. The problem is the chances of a deal within the OPEC have always been slim as Saudi Arabia was at first pushing for an all or nothing deal with Iran the sole opposition in March. Now while the Saudi stance has softened Iran is joined by Iraq and Indonesia who are seeking the exceptions already granted to Nigeria and Libya due to disruptions to supply.

Oil inventories in the U.S. will be released on Wednesday, November 23 at 10:30 am EST. Previous releases have shown buildups in crude stocks, but when taking distillates into the picture the outlook has been mixed as there have been more demand for refined products.

Market events to watch this week:

Wednesday, November 23
8:30am USD Core Durable Goods Orders m/m
8:30am USD Unemployment Claims
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Meeting Minutes
Thursday, November 24
4:00am EUR German Ifo Business Climate
Friday, November 25
4:30am GBP Second Estimate GDP q/q

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza