US dollar in red ahead of FOMC minutes

The US Dollar Index (DXY) is trading sideways at 104.6, with mild losses due to the cautious Fed’s hesitant approach to premature easing. The market’s focus is shifting towards the release of the Federal Open Markets Committee (FOMC) Minutes on Wednesday and mid-tier data on Thursday and Friday, including S&P PMIs and Durable Goods Orders.

As long as the US economy continues its robust growth and enduring inflation, Fed officials will lean toward caution, which could limit the downside for the USD. Market predictions suggest a 75% chance of a rate decrease during the Fed’s meeting in September, with odds slightly lower after being priced in last week.

Any fresh clues on the May FOMC Meeting Minutes or the outcome of May’s S&P PMIs or April Durable Goods orders might generate volatility in the USD dynamics. The Relative Strength Index (RSI) remains flat, indicating no clear dominance between buying and selling momentum.

Despite increased selling pressure pushing the pair below the 20-day Simple Moving Average (SMA), it continues to stay above the 100 and 200-day SMAs, highlighting a bigger bullish picture.

Ahead of FOMC Minutes also, Treasury yields have continued to fall since the beginning of daily trading on Tuesday, affected by statements from a number of Federal Reserve officials aimed at reassuring the markets that the central bank is not likely to raise interest rates in 2024.

Fed’s Christopher Waller ruled out on Tuesday that there would be a rate hike in the coming months, stressing that the economic data that appeared recently indicate that the current “tightening” monetary policy is moving in the direction targeted by the Federal Reserve.

The head of the Federal Reserve in Atlanta, Rafael Bostic, said that the central bank should “exercise caution” before cutting interest rates, given the resulting stimulation of spending, which is suffering from a decline at the current stage, which may help inflation to bounce back higher.

Yields on ten-year US Treasury bonds fell to 4.417% compared to the last daily close, which recorded 4.450%. Yields on government bonds rose to their highest level on Tuesday’s trading at 4.445%, compared to the lowest level recorded at 4.401%.