Fed Data Dependence Reigns

March FOMC Minutes offered little new information for FX, consistent with the muted post-release price action. With the unanimous exclusion of the “patient” language, discussion of a June hike was not a surprise, but in the wake of the weak March non-farm payrolls report it is a bit dated. The Fed is highly data dependent looking for “reasonable confidence” (primarily from labor market data) that inflation will rise to target over the forecast horizon, only increasing the importance of post-winter data in coming weeks.BofA Merrill Lynch says they believe that data will rebound as the effects of another extreme winter subside, supporting a continuation of the dollar’s post-payrolls rally. Discussion of the dollar in the Minutes mirrored the recent balanced tone with the dollar assessed as an input to their economic outlook as opposed to a policy tool. While some members believe dollar strength poses risks and could delay liftoff until later in 2015, it is still not a game changer for most members’ growth outlooks even as there’s some expectation that policy divergence will driver further USD strength.

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