MUFG on USD - FJElite

The FOMC minutes from the last meeting in June will be released this evening and we would caution against reading too much into the details of the minutes given the backdrop in the run-in to the meeting on 17lh June are quite different to now. The dots were likely submitted at the end of the previous week (ending 12th June) and we would argue that the breakdown of the FOMC dots would not show nine pitching for a rate hike if the meeting took place now. Nymex crude oil ended the week of 12th June at USD 85pbl, so we have declined a further 17.5% since then. Retail gasoline prices have declined a further 7.5% since then and are back at a level not seen since mid- March. In addition, we have had a weaker than expected NFP report (incl the two- month revision NFP was -17k in June) underlining weaker labour market conditions.

Of more significance for the markets’ expectations of Fed policy was Fed Chair Warsh’s comment at the ECB forum in Sintra last week when he acknowledged that inflation risks were subsiding. An obvious statement given the energy backdrop but surely a reflection of an increased risk of the Fed turning less concerned going forward and hence inflation concerns expressed in the minutes this evening can’t be taken at face-value.