The initial FX reaction to the FOMC minutes suggested a hawkish turn from the Fed but there isn’t much there. Here are three reasons to have bought the US dollar after the news but it’s arguable whether any of them were unexpected:

  1. The Fed will end the taper in October. The Fed has been tapering by $10 billion per meeting and that pace left the Fed in a jam at the end because it’s buying $45 billion. So either they buy $5 billion for the final months of the program or taper $15 billion in October. They indicated the latter is coming barring any major surprises.
  2. The Fed will stop reinvesting. It’s odd that the Fed wants to hike before quitting reinvesting QE proceeds but it looks like both moves will come around the same time with ‘many’ wanting to end reinvestments at or after the first rate hike. The newswire headlines says ‘on or after’ a hike but deeper in the minutes it says “most of these participants preferring to end them after liftoff” … after is a broad timeframe.
  3. The Fed was upbeat about the economy, or at least they weren’t overly worried. Staff continued to view risks around unemployment and inflation as roughly balanced. Risks to the forecast for real GDP growth were viewed as tilted a little to the downside in the previous statement but there outlook was all towards a pickup here, except for the long-term GDP growth, which we already knew from the forecasts.

The market was fearful of a more hawkish tilt, especially on inflation and employment. The kneejerk was toward a stronger dollar but there is very little to hang your hat on if you’re a US dollar bull and now the dollar is weakening.

Update: Now Bill Gross is chiming in, saying “Not much to go on for investors”. That’s pretty much the takeaway.