FX and other markets seem to have become less excited by the Fed in the past two weeks or so. The polls of institutions still show expectations positioned for a Fed hike next month, but the pricing in markets has become less convinced and this can also be seen in the latest dollar price action. The latest oil price developments have been playing a part and feeding into forward indicators of inflation. In the background is the global environment, which has become a more significant factor for the Fed in the past couple of years. We could get more on this front this evening from the latest Fed minutes for the end of July meeting. There were only subtle changes to the statement at that time, but at the margin, they did strengthen the perception that the Fed were gearing up for easing rates. Any dollar up-move on the release of minutes today is likely to be short-lived, given the subsequent developments that have largely undermined the easing case. Ahead of the Fed minutes this evening will be CPI data in the US, with a nudge higher from 0.1% to 0.2% on the headline rate, with core inflation seen steady at 1.8%.
As we mentioned yesterday, we’ve seen a decline in volatility over recent weeks and that has continued overnight, with relatively tight ranges on the majors. Beyond the majors, emerging market currencies continue to face pressure, especially those reliant on overseas capital who are seen as having a continued tough time as the Fed tightens policy. The South African rand has been under particular pressure in this regard, close to breaking the 13.00 level on USDZAR.