Chart Of The Day: Dollar Poised On The Edge Of A Knife

 | Dec 12, 2019 20:28

Like an idle employee who doesn't want colleagues to know they're hardly working, the Federal Reserve yesterday used all its usual buzzwords about keeping its finger on the economy’s pulse. For now, however, the world’s most influential central bank has decided to leave rates unchanged. That was widely expected.

What was more telling was the FOMC vote count. Members were unanimous on the rate decision for the first time since May.

Is this significant? It could be.

In the November vote, Esther George and Loretta Mester dissented, according to the minutes released after that meeting, "because they preferred to increase the target range for the federal funds rate by 25 basis points at this meeting.” Those two members seem to have changed their preference yesterday. Sounds dovish. In the immediate aftermath, Treasurys and the dollar sold off.

But the bigger picture tells a bit of a different story. Fed Chief Jerome Powell has made it clear throughout the last year that the Fed's biggest concern is trade. The U.S. central bank couldn’t possibly change policy days ahead of a potentially cataclysmic event on the economy — the U.S. hitting remaining Chinese imports with an additional $160 billion in tariffs, on an array of consumer goods.

If that's postponed and a partial agreement, at least, signed, even if meaningless in the longer run, some Fed members may feel more confident to increase the target range once more.

For now, the Fed signaled rates will remain low throughout 2020, but we’ve witnessed Fed rhetoric flipping 180 degrees from meeting to meeting, and sometimes even in between. The Fed is probably handling the market—and the U.S. president—with kid gloves, ahead of the crucial Dec. 15 tariff deadline, only four days after the FOMC meeting.

Perhaps, because of this very consideration, the dollar is sitting right on the fence between resuming its uptrend and beginning to slip into a downtrend.