No breakthrough after FOMC minutes. The dollar is strengthening

Yesterday's publication of minutes from the last FOMC meeting was an element that attracted the market's attention. The dollar managed to strengthen slightly and the indices headed south. However, the move was short-lived and volatility should be classified as "moderate". Couple EUR / USD for a moment it was listed below 1,06.

End of the tightening cycle?

There was no breakthrough in the records of the February meeting Federal Reserve. The market only received another confirmation that continuation of interest rate hikes is in the plans of the central bank. It can be said that the information gave even more certainty that The Fed is not done with the tightening cycle yet. The chance that we will see cosmetic reductions at the end of this year or at the beginning of the next has also decreased.

One sentence from the statement is worth quoting:

"Participants noted that the tightening policy stance will need to be maintained until incoming data provide confidence that inflation is on a sustained downward path to 2%, which is likely to take some time."

It said "nearly all" officials agreed that an increase of 25 bps was appropriate, while "a few" favored or could support a larger hike of 50 bp.

The minutes stressed that inflation "remains well above the Fed's target and the labor market remains very tight, contributing to continued upward pressure on wages and prices." Several officials said the "insufficiently restrictive" policy stance could hamper recent progress in easing inflationary pressures. At the same time, US officials noted that inflation data received over the last three months showed a welcome reduction in the monthly pace of price increases, but stressed that much more evidence of progress across a broader range of prices is needed to be sure that inflation is on a sustainable path inheritance.

The dollar is strengthening

The market may have been surprised by the information that up to several policy makers advocated more upward movement on the feet. This means that in addition to James Bullard (the strongest hawk) and Loretta Mester, there is someone else who thinks the same. However, that wasn't enough to get the dollar to catch wind in its sails.

The market valuation after yesterday's "minutes" has not changed almost at all. Fed Fund futures are fully pricing in a 25bp hike. at the next three meetings in March, May and June. They also indicate that the peak of the whole cycle will be at 5,54 percent. and that Powell will loosen policy slightly by the end of 2023.

EUR/USD traded below 1,06 for a moment. Yields on US 2-year bonds fell by a minimal 3 bp. to 4,69 percent and 10-year-olds to 3,92 percent. A decisive upward move took place on Tuesday's session. The indices closed the day showing cosmetic changes. The Dow Jones fell 0,3 percent, while the SP 500 lost 0,2 percent. and Nasdaq Composite gained 0,1 percent.

Source: Łukasz Zembik, OANDA TMS Brokers