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The main focus today is the FOMC minutes. The last time the Federal Reserve met, they extended Operation Twist, cut their economic projections and admitted they were overly optimistic. Today we will be looking to see if this pessimism was broadly shared or only the sentiment of a few FOMC members - the greater the consensus, the greater the pressure on the U.S. dollar.
However with most investors anticipating dovish comments, if the Fed sounds even the slight bit wishy-washy about QE3, the dollar could be squeezed higher.
Regards,
Kathy Lien
Managing Director
BK Asset Management
Last week's non-farm payrolls report divided the market with some economists arguing that job growth wasn't weak enough for the Fed to pull the trigger on another round of stimulus while others believed 3 months of payrolls below 100k keeps QE3 on the table. This lack of agreement means that every piece of incoming economic data will be assessed for on its impact on Fed policy.
With this in mind, tomorrow's FOMC minutes could help shape the market's expectations for QE3. When the Federal Reserve last met they extended Operation Twist and downgraded their GDP and inflation forecasts.
