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FOMC minutes risk for the dollar

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The dollar fell against the yen in Wednesday’s Asian session reversing gains made on Tuesday when the pair rallied to 120.45 yen. Profit taking ensued ahead of a key risk event today when the Federal Reserve releases minutes from its March 17-18 monetary policy meeting will be released.

Investors will cautiously watch for any hints over a rate hike. After last month’s policy meeting, the Fed’s statement signaled that rate hikes will begin soon after the central bank dropped the word “patience” from its statement. However, FOMC policy makers also downgraded their economic forecasts and lowered their projections for future interest rates. The downgraded view on GDP growth and inflation, as well as reiterating its concern with the strong dollar and international developments has weakned the dollar’s recent rally.

The FOMC minutes will give insight whether the shift in their forecasts is due to worries the fundamentals of the economy are not as strong as they had thought, or whether it is simply to take into account a weaker-than-expected start to the year.

The Fed noted that it will be watching data very closely as the timing of the rate hike is very much data-dependent. Last week’s nonfarm payrolls were dismal and this week’s non-manufacturing ISM data were not that encouraging.

A dovish minutes would be negative for the greenback and lead to a sell off.

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