empty
16.08.2023 07:33 PM
How will EUR/USD react to the minutes of the July FOMC meeting?

What are the consequences of a split within the FOMC? It is unlikely that the presence of diametrically opposed views in the minutes of the July FOMC meeting will be a revelation to the financial markets. After that meeting, Federal Reserve Governor Michelle Bowman spoke about the need for further increases in the federal funds rate, while Philadelphia Fed President Patrick Harker intended to halt the process of monetary policy tightening. Moreover, much has changed since then, including the balance of power in the EUR/USD pair.

A strong U.S. job market, a declining inflation trend, and surprisingly robust retail sales could have brought the FOMC to a consensus. A soft landing is in sight! The Personal Consumption Expenditures (PCE) index will return to its 2% target. Perhaps not today or tomorrow, but the day after. It just needs time. Essentially, the Federal Reserve has done its job and has stepped aside to assess the results. And the results are pleasing. Consumer prices have fallen from over 9% to 3%.

Dynamics of the Fed rate and inflation in the USA

This image is no longer relevant

It is doubtful that the FOMC's "hawks" will insist on raising borrowing costs to the 5.75% projected in June. Rates are already at a restrictive level, and the delayed effects of monetary tightening will continue to cool the U.S. economy. Meanwhile, inflation growth rates will decline. So, everything is clear with the Fed. The only uncertainty is when the "dovish" turn will occur. If it happens later than the derivatives market expects in March 2024, EUR/USD will continue its downward trend.

All signs point to this. The stock market's situation gives the green light to the U.S. dollar. Stocks are falling, indicating a worsening global appetite for risk and prompting investors to buy safe-haven assets like hotcakes. Bonds are also declining, leading to a rise in their yields, particularly in the U.S., resulting in a higher USD index.

In this context, the EUR/USD's reaction to stronger-than-expected British inflation data for July, as anticipated by Bloomberg experts, is telling. Initially, the pound strengthened on expectations of an increase in the repo rate to 6%, giving a boost to the euro.

Inflation dynamics in the UK

This image is no longer relevant

However, as bond yields in the UK rose, markets realized that the end of the monetary tightening cycles is still far off, including in the U.S. If so, the global rally in debt yields has gained momentum, bringing EUR/USD bulls back down to earth.

This image is no longer relevant

In my view, the minutes of the July FOMC meeting are unlikely to help EUR/USD bulls. Yes, an upward rebound is possible, but there are so many sellers of euros against the U.S. dollar in the market that the downward trend will quickly resume.

Technically, an inside bar has formed on the daily chart of EUR/USD. A successful test of its lower boundary near 1.09 will allow us to increase shorts formed from levels 1.1065 and 1.0965. Targets for the downward movement are 1.086 and 1.080.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

U.S. Inflation Data: What to Know and What to Expect

A highly anticipated March inflation report from the U.S. is expected today, with analysts predicting a slowdown, partly due to declining energy prices—which has brought some relief to consumers. According

Jakub Novak 12:09 2025-04-10 UTC+2

China Plans Emergency Meeting and a Strong Response to the U.S.

According to media reports, China's top leadership is set to hold an emergency meeting today to discuss additional economic stimulus measures following President Donald Trump's announcement of new tariff hikes

Jakub Novak 12:07 2025-04-10 UTC+2

Trump Suspends Tariffs for 90 Days but Raises Rates on China Even Further

President Donald Trump announced yesterday a 90-day suspension of tariff increases that had affected dozens of trade partners, while simultaneously raising tariffs on China to 125%. The president's policy shift

Jakub Novak 11:57 2025-04-10 UTC+2

Wall Street responding to president's call

Where there's smoke, there's fire. At the start of the second week of April, a rumor spread on social media about a 90-day delay in US tariffs, causing markets

Marek Petkovich 10:58 2025-04-10 UTC+2

Trump Maneuvers in Trade War With China (Potential for Continued Recovery in #SPX and AUD/USD)

The U.S. President continues maneuvering actively, engaging in geopolitics, economics, and global financial markets. Investors are asking: What happened on Wednesday? Why did the White House suddenly announce a truce

Pati Gani 09:56 2025-04-10 UTC+2

What to Pay Attention to on April 10? A Breakdown of Fundamental Events for Beginners

There are very few macroeconomic events scheduled for Thursday, but the U.S. inflation report still holds some relevance for traders. At the moment, inflation has limited influence because virtually everyone

Paolo Greco 06:49 2025-04-10 UTC+2

GBP/USD Overview. April 10: Trump Meets His Match

The GBP/USD currency pair showed gains and losses throughout Wednesday. The afternoon decline once again raised some questions, though market movements in recent months have lacked much logic. The market

Paolo Greco 03:21 2025-04-10 UTC+2

EUR/USD Overview. April 10: From Prince to Pauper

The EUR/USD currency pair continued to trade higher on Wednesday, once again failing to settle below the moving average line. Donald Trump keeps announcing new tariffs — or previously announced

Paolo Greco 03:21 2025-04-10 UTC+2

The Dollar – A Toxic Currency

Trouble often comes in pairs or groups. The decline of American exceptionalism is only one of the challenges facing EUR/USD bears. The main currency pair remains resilient and occasionally goes

Marek Petkovich 00:59 2025-04-10 UTC+2

GBP/JPY: Down, Only Down

The pound is plummeting against the yen. The cross has dropped by over a thousand points in just one week, reflecting the British currency's weakness and the yen's "crisis resilience."

Irina Manzenko 00:59 2025-04-10 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.