💵 Dollar loses ground ahead of FOMC minutes

The report from the last FOMC meeting is to be published at 7:00 PM BST💡

Markets expect today's publication of the FOMC minutes from the June 11-12, 2024 meeting to provide more information on the Fed's potential monetary policy in the second half of this year. At the last meeting, FOMC representatives lowered their expectations for rate cuts, and after Jerome Powell's conference, investors were pricing in 1-2 cuts this year. Additional information from the minutes should clarify the Fed's more hawkish stance while maintaining unchanged growth and unemployment forecasts.

Summary of the last FOMC meeting

• At the last meeting, the decision was made to keep interest rates unchanged at 5.25-5.50%. The Fed reiterated that it does not expect significant policy easing until inflation approaches the 2% target sustainably.

• The new dot plot showed a median interest rate forecast of 5.1% for 2024, indicating only one rate cut, with an almost equal split between forecasts for 1 or 2 cuts.

• The Fed's rate forecast for 2024 is 5.1% (previously 4.6%), for 2025 is 4.1% (previously 3.9%), and for 2026 remains at 3.1%.

• The core PCE inflation forecast was raised to 2.8% for 2024 and 2.3% for 2025.

• The real GDP forecast remains unchanged at 2.1% for 2024 and 2.0% for both 2025 and 2026.

• The unemployment rate forecast for 2024 remains at 4.0%, slightly increased to 4.2% for 2025 (previously 4.1%) and 4.1% for 2026 (previously 4.0%).

• The PCE inflation forecast for 2024 is 2.6% (previously 2.4%), for 2025 is 2.3% (previously 2.2%), and for 2026 remains at 2.0%.

The main focus for investors during today's FOMC minutes could be the revised upward dot plot. Concerns about a medium-term inflation rebound have led Federal Reserve officials to consider keeping rates higher for a longer period than previously anticipated in March. Source: Bloomberg Financial LP

The publication triggered a hawkish reaction in the markets. However, at the post-decision conference, Jerome Powell emphasized that the forecasts are relatively conservative. His cautious tone included dovish elements, which provided some relief to the markets.

What to expect from today's publication?

The minutes should provide more information on how FOMC members view the changing balance of risks and what to watch for in the continuation of the disinflation process. Powell's later comments were cautious and highlighted the importance of balance in the labor market. The Fed believes that the labor market is still stabilizing and that the interest rate around 4.00% is still relatively low. However, if a significant downturn in the labor market is observed in the coming months, it could be a clear signal for the Fed to cut interest rates.

Expected conclusions from the Minutes publication:

• Interest rate cuts will depend on the labor market situation and the ongoing disinflation process. The Fed will make decisions based on incoming economic data.

• FOMC members will observe improvements in the labor market, especially regarding reduced wage pressure.

• Although the labor market is currently more balanced, according to Jerome Powell, the risk of worsening issues could prompt the Fed to lower interest rates sooner.

EURUSD (D1)

Today, the important ADP labor market report will be published. Therefore, the current market reaction may not be solely related to the FOMC minutes release later in the day. However, at the time of publication, the dollar is down 0.10% against the EUR, and indices are trading higher. Investors remain optimistic about both publications. On the daily chart, EURUSD is rebounding from a key support zone above 1.07200. If the reports are anti-dollar, we can expect a continuation towards 1.08000. Otherwise, the nearest support zone remains the mentioned 1.0700-1.07200 level.

Source: xStation

US100 (H4)

The US100 index continues to rise following Powell's dovish comments yesterday and Tesla's strong Q2 delivery results. Technically, the US100 has broken above the upper boundary of the ascending channel and is now trading just 0.6% below historical highs.

Source: xStation