Dollar Higher after Release of Hawkish FOMC Minutes (page 2 of 2)

Strong economic data reminded the markets that the Bank of England is still on track to raise interest rates later this year. Leading indicators increased by 0.8 percent in the month of February while the BRC sales monitor jumped by 6.2 percent in the month of March. To go from voting 8-1 to leave interest rates unchanged, with the one dissenting voter rooting for a rate cut in March to a rate hike in April was too big of a jump for the central bank to make. However the votes should have leaned closer to a rate hike in April, paving the way for an actual dose of tightening in May or June. We will know more on this come April 18th, when the minutes from the meeting earlier this month is released. In the meantime, as long as UK data continues to come out strongly, the market will look for higher rates, snapping up British pounds in the process. Meanwhile, the pound also received a boost from an FT story revealing that the Treasury is discussing proposals to allow UK firms to repatriate some of their international profits tax free. This reminds us of the tax holiday offered by the US Homeland Investment Act back in 2004. If passed, it would be exceptionally bullish for the British pound. However, it is only being discussed and has not been passed by the Treasury at the moment, so it could be some time before we actually see the flow.

Japanese Yen -Demand for carry trades continues to be one of the most predominant themes in the currency markets with traders driving EUR/JPY to a fresh all time high and AUD/JPY to a new 10 year high. The Yen has sold off significantly over the past month and is showing no signs of stopping. The market may be underestimating the risks that the upcoming G7 meeting poses. No one expects the G7 to criticize the Japanese for allowing their currency to weaken so significantly so quickly, but we are sure that there will be many sideline discussions about it. If any of these comments are caught by the press, we could see a rebound in the Yen. Japanese domestic capital goods price index is due for release tonight. Inflation is expected to tick higher, but it will not be enough to shift the BoJ's stance.

Commodity Dollars (AUD, NZD, CAD) - Having rallied significantly over the past month, we are not surprised to see a mild correction on the back of broad dollar strength in the both the Australian and New Zealand dollars today. There were no surprises in last night's home loans and investment lending reports, but tonight unemployment number could be a big market mover. The labor market in Australia is very healthy but recent disappointments in economic data have analysts forecasting slower job growth. The risk is for an upside surprise, which will drive strong gains in the Aussie as the market will look to at least 6.50 percent rates this year. Meanwhile the Canadian dollar surged to a fresh year to date on the back of strong housing starts in the month of March. Canadian data has consistently surprised the upside. This has kept the currency shielded from the recent drop in oil prices.