US Dollar, Japanese Yen Gain as FOMC Minutes Reflect Dreary GDP, Unemployment Outlooks

The US dollar and Japanese yen were amongst the stronger currencies on Wednesday, though we’ve seen little in the way of “breakouts”, as the release of the Federal Open Market Committee’s (FOMC) meeting minutes from March wasn’t exactly groundbreaking since there was little in the way of new details revealed. During March, the FOMC left the fed funds target range at 0.0 percent - 0.25 percent but the big surprise was that they officially announced quantitative easing efforts. The only noteworthy part of the minutes was that the FOMC staff projections for the second half of 2009 and 2010 were downgraded from the FOMC’s long-run projections for growth, unemployment, and inflation in January. While the exact revisions were not published, the minutes did say that GDP was expected to “flatten out gradually over the second half of this year and then to expand slowly next year,” and that this “weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year.” All told, this suggests that Q3 and Q4 GDP results aren’t likely to show any sort of recovery, while the unemployment rate could breach the upper range of the FOMC’s projections of 9.2 percent, and perhaps reach double-digits.

Looking ahead to Thursday, risk trends are likely to remain the primary driver of US dollar and Japanese yen price action. There will be a few US economic indicators on hand, including the trade balance (expected to have held steady at -$36 billion in February), the import price index (expected to have risen 0.9 percent in March, but remain down 14.7 percent from a year ago), and jobless claims (initial and continuing claims should remain near record highs).