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U.S. Dollar Falls as Focus Turns to Inflation and The Fed - WSJ

OCTOBER 12, 2017

FOMC minutes reveal the Federal Reserve is on track to raise rates despite weak inflation

 

By Daniel Kruger

The U.S. dollar declined Wednesday as minutes from the Federal Reserve’s September meeting showed officials are paying close attention to the path of inflation before making a decision about another interest-rate increase this year.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, declined 0.2% to 86.44 amid losses against the euro.

Fed officials said the likelihood of another increase this year “would depend importantly on whether the economic data in coming months increased their confidence that inflation was moving up toward the committee’s 2% target. The Fed last month signaledthat it intends to increase rates by the end of the year, followed by three more moves in 2018.

Expectations for higher interest rates tend to boost the dollar by making it more attractive to yield-seeking investors.

A stall in inflation could make it more difficult for the Fed to meet its forecast. Consumer prices rose 1.9% in August from the previous year, climbing 1.7% when more volatile food and energy components are excluded.

“The market has already priced in a lot of the good news for the dollar in the last month,” said Mark McCormick, North American head of FX strategy at TD Securities, prior to the release of the minutes. For the dollar to gain “what we need is an upside surprise” on inflation.

The euro rose 0.4% against the dollar to $1.1859.

Fed officials have remained emphatic about raising interest rates this year, even though inflation has yet remained persistently below the central bank’s 2% target. Fed Chairwoman Janet Yellen said last month that it would be “imprudent” for policy makers to wait for prices to rise before acting to curb their potential growth. Signs that consumer prices are accelerating would help support the currency by supporting the Fed’s rationale for continuing with their moves.

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