The USD Climbs As Gold Falls Hard On FOMC Minutes

The big market news yesterday and its continuing effects today has been the FOMC minutes release. Gold tumbled as the US dollar soared. The DX US dollar index was volatile but within fairly tight ranges thus far in response to the FOMC minutes.  The DX is trading above the 81.00 price. The Fed is aware that conditions have improved somewhat, and knows of costs to its efforts, but views it as premature to pull back on the throttle. The keys in this regard are that the minutes note that ‘several’ say they should be prepared to vary the pace of QE, while ‘many’ expressed ‘some’ concern about potential costs and risks of more asset purchases, and yet ‘several’ saw risks to reducing or ending QE too soon.  As a consequence, the Fed knows that several of the tail risks have been removed or lessened from the outlook, that conditions are slowly if frustratingly improving, and yet it remains premature to draw any hard and fast policy conclusions. As conditions in the US continue to improve and with “sequestered” budget cuts behind the market with the March 1st deadline approaching, there is a likelihood that the Fed will either reduce or terminate its asset programs. Yesterday’s FOMC minutes moved the odds in favor of a reduction rather than a continuation.