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

GBP/JPY. Analysis and Forecast

The GBP/JPY pair is retreating from the psychological level of 190.00, or a two-week high reached earlier today. Following disappointing UK PMI data, selling pressure has intensified, pulling spot prices

Irina Yanina 18:16 2025-04-23 UTC+2

Market walks through minefield

If the market can rally this much on hints from Treasury Secretary Scott Bessent about de-escalation in the trade conflict with China, imagine how high the S&P 500 could jump

Marek Petkovich 12:35 2025-04-23 UTC+2

The Likelihood of a Euro Reversal to the South Is Increasing

As expected, the ECB cut all key interest rates by a quarter-point, bringing the deposit rate down to 2.25%. At this meeting, no new staff projections were released, and given

Kuvat Raharjo 12:01 2025-04-23 UTC+2

Markets Await a Massive Rally if the U.S. Starts Real Negotiations with China (There is a likelihood of continued growth in #NDX and Ethereum)

A new wave of euphoria has swept through the markets. Many believe it's not a coincidence: take everything away from a person and then provide them with even the smallest

Pati Gani 09:03 2025-04-23 UTC+2

What to Pay Attention to on April 23? A Breakdown of Fundamental Events for Beginners

A considerable number of macroeconomic events are scheduled for Wednesday. All of them are Purchasing Managers' Index (PMI) reports for April in the services and manufacturing sectors. The indices will

Paolo Greco 07:01 2025-04-23 UTC+2

GBP/USD Overview – April 23: The British Pound Can't Stop Smiling

On Tuesday, the GBP/USD currency pair traded much more calmly, yet again showed signs of a "maxed-out flat" pattern. As previously noted, the US dollar has only had two behaviors

Paolo Greco 04:56 2025-04-23 UTC+2

EUR/USD Overview – April 23: Another Calm Before Another Collapse?

The EUR/USD currency pair traded more calmly on Tuesday than on Monday. The US dollar managed to avoid another fall, but it's too early to celebrate. The greenback can collapse

Paolo Greco 04:56 2025-04-23 UTC+2

USD/JPY. On the Threshold of the 139th Figure

The USD/JPY pair has been in a consistent downtrend for the fourth consecutive week. On Tuesday, sellers pushed the pair to the edge of the 139.00 area, hitting the lowest

Irina Manzenko 00:46 2025-04-23 UTC+2

The Dollar Has Been Replaced. Nature Abhors a Vacuum

Fear paralyzes, but action persists. Investors are slowly overcoming their concerns over Donald Trump's attacks on the independence of the Federal Reserve and are starting to lock in profits

Marek Petkovich 00:08 2025-04-23 UTC+2

Bitcoin Took Its Chance

Slow and steady wins the race! Bitcoin quietly broke through to its highest levels since early March amid Donald Trump's attacks on Jerome Powell. When the independence of the Federal

Marek Petkovich 00:08 2025-04-23 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.