If the Fed Either Wrote Minutes or Revised the Minutes with
the intention of stablizing the USD, by deliberately placing language in the text that refers to the concerning effects of a lower dollar (and I don't think they did--I think this is an unintended consequence of the Minutes being released later, into a week when the USD was perhaps very low and set for a reversal) then I see two problems with their "intention."
1. Engineering a dollar bounce to then give themselves room to pause makes sense on one level. However, since there is no fundamental reason for the dollar to go higher, and, that engineering such a bounce is, therfore, merely one of triggering a speculative flush, then, pushing the USD back UP in such a fashion actually places the USD in more grave danger to the downside. One could surmise the market was already restraining itself at the 80.00 USDX level--and one could further surmise that even breaks below 80.00 may have been short-lived. In addition, one could also conjecture that closes below 80.00 might have laid the foundations for a "real" counter-trend rally, as the market may have finally said "enough" (for now.) But if the Fed has engineered this bounce, that merely flushes out shorts and other anti-dollar positions--potentially leaving the dollar even more vulnerable. The Fed in this scenario has hurt the very people who might have covered below 80.00--say at 76.00-78.00. So if the Fed engineered this for Rate Pause purposes, they are as usual playing with fire.
We make the assumption the dollar is less vulnerable to a rate pause at 84.00--rather than at 80.00. It sounds so reasonable, you know? But I wonder that it's not the case.
2. The other problem I see which I mentioned earlier today is that if the Fed does in fact ignite a counter-trend rally--along with Washington figures like Snow--then they are going to be tightening monetary conditions rapidly, as the neutralizing effects of a lower dollar on 5 rates hikes is removed.
Am I to conclude from the Fed that the Reflationary Era is over? Do they now want higher rates and a stronger dollar too?
I can't believe it.
Again, what I have seen from the Fed in the last several years is that they give back everything they take, and they take back everything they have given--using language. And here we have the perfect, book-end example: it begins with the Greenspan's comments in Berlin on falling USD-denominated assets--which gave the USD a shove down the embankment, and now is softened by this week's released Minutes, which then "complains" (lightly) about the dollar's fall. Do they do this by intention? Sometimes I just wonder if they are confused--and of course they are just people. They cannot control the outcomes of their actions.
Best,
LP |
