FOMC minutes: will the USD gain a foothold

Trade wars highly affect different assets including the US dollar. The escalation of the trade wars leads to the dollar depreciation. However, according to recent news, now even easing of trade wars tensions does not support the US dollar. Worries on trade wars declined yesterday after the speech of China’s President at the Boao Forum for Asia, but the greenback has continued to fall.

Investors are waiting for CPI, Core CPI data and FOMC meeting minutes that will be out today.

Let’s analyze if there is any chance for the dollar to recover.

Today at 21 MT time the Fed will announce the minutes where it will give a deep insight into the economic and financial conditions that influenced the March rate hike.

We remember that after the Fed raised the interest rate on March 21, investors did not react to that decision and the greenback fell. 

Why did it happen? It happened because the market was prepared for the rate hike, so that decision was already included in the dollar’s price.

So what can support the US currency?

The market already anticipates two additional rate hikes this year. It means that the Fed should encourage the market with something extra. The extra is not two but three additional rate hikes this year.

In meeting minutes, the central bank not only explains its decisions but also gives clues on the future monetary policy. So if the Fed minutes are hawkish today and there is any clue on the bigger number of rate hikes by a positive assessment of the economy, the dollar will be able to recover.

There is a high possibility that minutes will be hawkish. The outlook for the US economy of the Fed’s chairman that he announced last Friday was quite upbeat. The chairman mentioned the strong labor market, an expectation on the growing inflation, steady income gains, rising household wealth, and elevated consumer confidence. Mr. Powell said: “As long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals.”

As you can see Mr. Powell was hawkish in his speech four days ago and it is unlikely that the Fed’s mood will change immediately. However, nothing can be accurate in the policy.

What can stop the Fed from the hawkish sounding speech?

The Fed can correct its minutes until the release, so trade wars tensions can be taken into consideration as well. The current easing of the trade wars tensions cannot guarantee that the situation will improve in the future. As you could notice, trade wars are a swing. New tariffs change with new prospects on the peaceful settlement of a dispute. If the Fed’s mentions fears of a slowdown related to the trade wars, the US dollar may fall further.

Do not forget about such important economic indicator as inflation. CPI m/m and Core CPI m/m figures will be announced today at 15:30 MT time. According to the forecast, the headline CPI is anticipated to be lower by two percentage points (0.0% vs 0.2%) when the Core CPI is supposed to remain unchanged at 0.2%. The forecast is not encouraging, however, if the actual data is greater than it, the US dollar has chances to turn its direction.

To conclude, we can say that there is a high possibility that Fed’s minutes will be hawkish today and investors will be able to see clues on the third additional rate hike this year. However, trade wars tensions cannot be avoided. Even a small doubt can lead to the further fall of the US dollar. Moreover, CPI and Core CPI data are anticipated to be weak. Let’s look whether Fed and economic indicators are on the greenback’s side.