Dovish Fed minutes weigh on dollar

The dollar weakened after Fed minutes revealed a few policy makers said the bank could “afford to be patient" before raising interest rates again as they saw a greater likelihood that "inflation might remain below 2% for longer than currently expected." Most central bank policy makers wanted to wait until an "upcoming" meeting to announce details of planned unwinding of the central bank's $4.5 trillion in bond holdings. In economic data industrial production rose over year in July to 2.2% from 2.1% in June while manufacturing production growth slowed to 1.2% from 1.3%. consumer sentiment improved yet again in August. Investors built net short dollar position as Fed minutes revealed central bankers were concerned about sluggish inflation. As is evident from the Sentiment table, sentiment improved for all major currencies except for British Pound and Swiss franc. And the euro, Canadian and Australian dollars remain the three major currencies held net long against the US dollar.

The euro bullish sentiment strengthened noticeably as the second estimate of GDP showed the euro-zone economy acceleration in second quarter was faster than first estimated. Q2 GDP grew at 2.2% annualized rate instead of 2.1% preliminary estimate. The net long euro position rose $1.3bn to $12.93bn. Investors built the gross longs and cut shorts by 7482 and 1227 contracts respectively. The British Pound sentiment deteriorated considerably despite a decline in June unemployment rate to 4.4% from 4.5%. The net short position in British Pound widened $1.12bn to $3.68bn as investors cut the gross longs and built shorts by 2326 and 11714 contracts respectively. The bearish Japanese yen sentiment moderated marginally as the trade surplus declined to JPY 419 billion in July from JPY 440 billion in June. The net short position in yen narrowed $0.3bn to $8.45bn. Investors built the gross longs and covered shorts by 1854 and 1552 contracts respectively.

The Canadian dollar sentiment was little changed as retail sales remained steady at 7.3% over year in June and headline inflation rose 0.2 percentage point to 1.2% in July. The net long Canadian dollar position rose $41 million to $4.07bn. Investors cut both the gross longs and shorts. The Australian dollar bullish sentiment strengthened marginally as the unemployment rate in Australia fell to 5.6% in July from 5.7%. The net longs rose by $0.16bn to $4.78bn. Investors cut both the gross longs and shorts. The bearish Swiss franc sentiment intensified marginally despite higher trade surplus in July. The net shorts widened by $105 million to $257 million. Investors cut the gross longs and built shorts.