US dollar suffers mild loss following FOMC minutes

In the North American session on Wednesday, initially the DXY Index fell below 104.00 following the publication of the minutes from the FOMC meeting in January. At the time of writing the Index records 104.040, it is back above the 104.00 mark but with mild loss.

Several FOMC members think interest rates may have peaked, per the FOMC minutes. Fed officials express concerns over challenges in meeting inflation goals. The Fed’s intention to keep rates untouched may fuel further gains for the dollar.

The Federal Reserve minutes failed to ignite big moves on the dollar, which caused the US Dollar Index to slightly decline and settle at 104.00 on Wednesday. The US economy is resilient, as evidenced by the strength of the dollar in 2024 and solid data supporting it. The Federal Reserve (Fed) is determined to keep rates at restrictive levels and maintains a hawkish posture in the meantime. It rejects any short-term rate decreases. The market gradually comes around to this perspective, which feeds expectations of a postponed cycle of easing.

The Federal Open Market Committee (FOMC) Minutes revealed that some members see the possibility that interest rates have reached their maximum, suggesting a cautious approach moving forward.

Concerns were raised by officials about the difficulties in achieving the inflation targets, highlighting uncertainties in the economic landscape.

The economic forecast is now considered more optimistic than previously thought in December, as per the views of certain policymakers.

As for now, the CME FedWatch Tool indicates a 20% chance of a rate cut at the next meeting in March and also remains low for May, reflecting the market sentiment leaning toward the Fed’s intent to hold rates steady at restrictive levels. Markets are now pushing the start of the interest rate easing to June.

Technical Outlook:

DXY bulls stand weak and must recover the 100-day SMA. The indicators on the daily chart reflect a balance between buying and selling pressure. The Relative Strength Index (RSI) is in positive territory, but its negative slope suggests that buying momentum is losing steam. The Moving Average Convergence Divergence (MACD), with its decreasing green bars, implies that any bullish momentum is weakening and could potentially flip into a bearish bias.

Furthermore, the positioning of the index compared with its Simple Moving Averages (SMAs) provides an interesting perspective. Despite the bearish pressure, bulls have managed to keep the DXY above the 20-day and 200-day SMAs. This suggests that buyers continue to wield some strength in the broader time horizon.

However, the Dollar Index being below the 100-day SMA may hint at intermediate barriers for bullish movements. Hence, while the broader trend might still be inclined toward buyers, the short-term outlook presents a battle for control between bulls and bears.