Hawkish Fed rhetoric fails to lift the dollar as Wall Street estimates a recession

The Fed members sounded hawkish as per the minutes of the Federal Open Market Committee (FOMC) meeting which were released last night. In an interview with CNBC-TV18, Steve Englander, Global Head of G10 FX Research and North America Macro Strategy at Standard Chartered Bank spoke at length about what to expect from the Fed and the key takeaway from the minutes.

Minutes of the Fed's December policy meeting released overnight showed that while officials agreed that the central bank should slow the pace of its aggressive interest rate increases, they remained focused on curbing inflation, and were worried about any "misperception" in financial markets that their commitment was flagging.

Yet this failed to give a boost to the U.S. currency a boost. Against a basket of currencies, the U.S. dollar index fell 0.14 percent to 104.06, after slipping 0.5 percent on Wednesday.

Economic data also released on Wednesday revealed that U.S. job openings fell less than expected in November, though a survey from the Institute for Supply Management (ISM) showed that U.S. manufacturing activity contracted again in December.

According to Englander, the market reads the USD Federal Reserve’s December meeting minutes as hawkish. He said, “The market read it as being somewhat hawkish; it was a repetition of some of the hawkish themes that had emerged during the FOMC press conference and some of the comments afterwards. I didn't see anything new.”

He also said that the market is challenging Fed's economic forecast and is estimating a recession. “The market is not challenging the reaction function. The market is challenging their economic forecast. Investors think a recession is coming and that is going to justify the easing that they see. It's not that they are saying that the Fed will be dovish,” Englander said.

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