Fed Minutes May Provide Temporary Support for US Dollar

Commerzbank's Antje Praefcke says markets will closely watch the latest Federal Reserve minutes for clues on how close policymakers are to raising interest rates. The release of these minutes could provide some support for the US Dollar, but a fundamental shift in Fed rate expectations and sharp Dollar moves remain unlikely.

The Fed meeting at the end of July is likely to draw attention, particularly regarding the market's attempt to discern how close FOMC members were and still are to raising interest rates. New Fed Chairman Kevin Warsh intends to comment less on monetary policy and let the market do its job.

According to Praefcke, 'the Fed - and the Fed alone - is responsible for price stability through its setting of the federal funds rate, not the market.' This means that in the absence of clear statements in the press release and at the press conference following the Fed meeting, the market might try to learn more about the discussions among FOMC members from the minutes.

The market is no longer fully pricing in an interest rate hike by the end of the year due to weaker-than-expected labor market and inflation figures. However, if an interest rate hike in September was a real possibility after all, the market could raise its rate hike expectations for the Fed slightly again and provide support for the dollar.