US Dollar Extends Gains as Fed Minutes Reinforce Hawkish Monetary Policy Outlook

Key points for feeding minutes:

• Fed minutes from the June meeting show that central bank officials believe additional policy steadfastness may be justified to reduce price pressures.
• The two-day session report also reveals that policy makers are not entirely satisfied with the progress of the two-day session economic inflation Before
• the U.S. dollar Extends gains as yields trend higher

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Today the Fed released the minutes of the June 13-14 Fed meeting, at which the rate-setting committee voted unanimously to keep borrowing costs between 5.00% and 5.25%, as part of a strategy aimed at buying time for a better rate assessment. Cumulative effect of previous policy confirmation.

According to the summary record of the proceedings, Almost all Fed officials It saw inflation biased to the upside, unacceptably high and decelerating less quickly than expected. In addition, respondents acknowledged that labor markets remain tight and above-trend nominal wage growth may not be consistent with the 2% aggregate price level over the long term.

In terms of economic activity, policy makers indicated that “growth” is likely to moderate this year, but they sounded more confident about the state of the banking sector, noting that “pressures” in the system compared to previous months. This may give cover to the central bank to maintain an aggressive stance in the near term.

Under the current economic conditions, most members judged so Additional tightening would be warranted in 2023, a clear sign that policymakers may resume their hiking campaign at this month’s meeting after hitting the pause button in June.

Immediately after the release of the minutes, US Treasury yields extended their daily rally, as the tone of the document pushed interest rate expectations in a more hawkish direction. In this context, the US Dollar Index (DXY) accelerated its advance, coming close to achieving its best level in three weeks.

Looking ahead, traders should keep a close eye on the macro stats. If incoming data confirms that the economy remains resilient, the FOMC is likely to proceed with further hikes. This scenario could keep yields and the US dollar biased to the upside.

USD productivity vs yield chart

source: TradingView