US Dollar Extends Losses as Fed Minutes Flag Recession Risks amid Banking Sector Turmoil

Key points for feeding minutes:

• Fed minutes stress the need for Monetary policy Flexibility in light of recent events
• Policymakers cut their expectations to Federal Open Market Committee The final interest rate in response to the banking sector turmoil last month
• the U.S. dollar Its daily decline extends after the release of the Fed’s meeting minutes

Most read: Bank of Canada keeps interest rates steady and sticks to data dependence, USD/CAD drops

Today, the Fed released the minutes of its March 21-22 meeting, where policymakers unanimously decided to raise the benchmark interest rate by 25 basis points to 4.75%-5.00% as part of its ongoing tightening campaign to bring inflation back to 2.0. % Goal.

According to the summary record of actions, several Fed officials indicated that inflation remains bullish, with little evidence of persistent inflation in basic services, excluding housing, in recent data.

Despite concerns about the inflation profile, many participants lowered their expectations for the final FOMC interest rate in response to the turmoil in the US banking sector that sent investors crashing a few weeks ago. The prevailing view was that the financial system jitters that erupted last month could lead to More restrictive lending standards In the coming months, paving the way for weaker price pressures in the medium term.

On the economy, the central bank staff forecast a “moderate recession” Starting later in the year, in a sign that the outlook is deteriorating amid Increased risk of credit crunch. This assessment could be a clear indication that the violent hiking cycle that began in 2022 is over or will end soon, perhaps after the policy meeting next month.

Immediately after the release of the minutes, the US dollar, as measured by the DXY index, extended its losses, falling 0.65% to 101.50 on the day, under pressure from falling bond yields, with the Fed’s monetary policy path turning more pessimistic. According to futures market prices.

With the Fed stalling imminent, the path of least resistance is likely to be lower for the US dollar in the near term, especially if sentiment can stabilize. However, if the mood worsens again and volatility explodes higher, the dollar could be well positioned to check in against riskier currencies due to its safe-haven qualities.

USD (DXY) 5-minute chart

Source: TradingView