FOMC Minutes Keep USD Supported

Far from adding weight to the idea of a “Fed pivot” in the near-term. The release of the July FOMC minutes yesterday saw the Fed reaffirming its commitment to continued tightening. The Fed outlined plans to press ahead with tightening until inflation was back at the bank’s 2% target. While the bank acknowledged downside risks from tightening too aggressively, the bank retained its focus on battling inflation and cited some of the positive aspects of recent Dollar strength including its role in keeping import inflation down.

There was little in the minutes to suggest the Fed might take a slower pace of tightening going forward, beyond the guidance that it will adopt a data-dependant stance going forward. In light of recent data (negative Q2 GDP, weaker July inflation), there is an argument for a smaller hike in September. However, even at .5%, US rates are still increasing at pace and USD looks likely to stay firm in the near-term. The caveat to this is if we see inflation start to moderate at a faster pace in the coming months. In such circumstances, the idea of a Fed pivot might start to attract more focus, weighing on USD.

Technical Views


The rally in the DXY has seen the market trading higher within a well-defined bull channel over the year so far. However, it is worth noting that we have seen strong bearish divergence in momentum studies into recent highs. Price has since corrected lower and is now sitting on the channel low, underpinned by support at the 104.02 level. Should we see a break of this level near-term, the focus will shift to 101.17 next.