The minutes relate to the FOMC at the beginning of May. Fed Chair Jerome Powell was less dovish than the markets had been expecting, as he downplayed the chances of a rate cut. This less dovish tone could be echoed in the minutes, especially given that the FOMC was prior to the recent escalation in US – Sino trade tensions
We expect the minutes to highlight the Fed’s belief that weak inflation is transitory We also expect the minutes to reiterate the Fed’s patient stance.
Since the meeting two weeks ago the pictured has changed and concerns have grown over the potentially negative impact that the escalating US – Sino trade dispute could have on the US and global economy. Going forwards the Fed could look to cushion this by cutting rates. According to the CME Fedfund the markets are now pricing in 100% probability of a rate cut before the end of the year.
Why is dollar still king?
So why is the dollar advancing even as the market is pricing in a great probability of a rate cut? Basically, the dollar continues to be the best of a bad bunch. The pound is under pressure from Brexit, the euro from weak growth across the eurozone. The Aussie and the Kiwi are both out of favour owing to the trade war and lower interest rate expectations. The yen’s appeal has been lifted thanks to its safe haven status, although is limited thanks to its ultra-low interest rate.
One of the narratives impacting the other currencies needs to change in order for the dollar to change its course.
Levels to watch
The dollar index is currently trading at the higher end of its recent range and around the key 98.00 level. A meaningful move above this level could see the dollar test resistance at 98.33. On the downside support can be seen at 97.26 before 96.75.
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