Fed debating when to unwind $4.5 trillion in bond holdings

Investors were likely digesting minutes from the Federal Open Market Committee’s June meeting released on Wednesday U.S. time.

The June minutes showed several Fed officials expressed concerns about the downshift in inflation data even as most agreed to raised rates by a quarter point last month.

US central bankers in June raised the benchmark lending rate for a second time this year to a range of 1 percent to 1.25 percent, while describing monetary policy as “accommodative” in their statement. While uncertainty in the longer term has the ability to ensure the yellow metal remains buoyant, bulls are fighting against the tide in the short term. Oil recovered some ground after a surprisingly upbeat picture of US demand halted the previous day’s 4 percent slide, although the prospect of oversupply in 2018 prompted more analysts to cut price forecasts.

A fresh round of labor-market numbers are due later in the week, with private-sector ADP Inc. data slated to come on Thursday and the more closely followed nonfarm-payroll report scheduled for Friday morning. The Federal Reserve, the Bank of England as well as the European Central Bank, Reserve Bank of Australia and the Bank of Japan are all part of this group of rate setters that must sit on their hands for fear of, as one Australian policy maker put it yesterday, “scaring the horses”. The unemployment rate fell in June to 4.3% to mark the lowest jobless level in 16 years. The Canadian dollar lost ground against its US counterpart on Wednesday as oil fell and the dollar firmed pressuring oil-correlated Canadian dollar. Asian currencies, the Chinese yuan inched up 0.1% in early trade, snapping two consecutive days of declines, while the Singapore dollar rose as much as 0.2%. The shedding of the bonds and other securities, most of which were purchased in the wake of the 2007-2009 financial crisis, marks the final chapter in the central bank’s normalization of monetary policy.

In late trading, the greenback topped ¥113.50 as the US interest rates jumped, market sources said. It hit session high at 0.7602 and made session lows at 0.7570 levels.

Forex.com’s Fawad Razaqzada expects the minutes to be hawkish because the commentary from several of the Fed officials at the meeting since, has been relatively hawkish.

For now investors seem to be giving policymakers the benefit of the doubt that the global economy can take any tightening of monetary policy, although the latest data on Wednesday was mixed – strong in Europe and weaker in China.

The Taiwan Weighted dropped 0.4 percent after a government report showed Taiwan’s consumer price inflation increased for the fourth successive month in June.

Yesterday, the minutes of the Federal Reserve’s June meeting were released.

August gold fell USD2.50, or 0.2%, to settle at USD1,221.70 an ounce, holding near 8-week lows.

USA gold futures for August delivery settled at $1,221.70, up 0.2 percent from Monday’s settlement following a US holiday on Tuesday.