FED minutes boost USD. Stocks and gold plunge

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The Wall Street New Year’s rally came to an abrupt end yesterday when minutes from the Federal Reserve, FED’s, December policy meeting put severe questions marks to whether monetary policy stimuli will continue. The minutes were released Thursday and the optimistic markets reacted immediately by sending US and Asian markets down. The USD skyrocketed while commodities and precious metals were in free fall. Euro/USD trades at 1.3034, a 250 basis points fall from the first trading day in January. Gold plunged USD 45 from its new year’s peak, and oil prices lose ground.
The released minutes showed that some voting members of FED were increasingly concerned about the potential risks of FED’s asset purchases. The asset-buying policy has been pivotal in underpinning investor risk appetite and supporting global equities. The more hawkish FED minutes unnerved financial markets. Stocks gave up earlier gains and benchmark US Treasury yields rose to a near eight month high having a strong negative impact oil, commodities and equities lifting the dollar.
US private sector hiring was pointing upwards before the monthly payrolls report is due later today. The monthly payroll report is one crucial indicator for FED deciding on future policy course. The rise in the dollar hit precious metals and oil especially hard. A firmer dollar makes dollar-based assets more expensive for non-dollar holders. The strong moves in the markets reflect positioning after the recent rallies and before the nonfarm payrolls report which can tip markets either way.
While Nasdag and Dow Jones fell moderately, the MSCI index for Asia-Pacific fell 0,8 % after reaching a 19-months high on Thursday. The dollar hit its highest level against Yen since July 2010 at 87,78. The Euro fell to a three week low of 1.3018 against the dollar on Friday. The US dollar index, DXY, touched a four-week high against a basket of major currencies. The fall in the yen will probably continue with 90 yen against USD as likely in the short term. Yen’s fall continues to strengthen Nikkei which is at its highest level since March 2011.
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