USD loses more ground as Fed minutes signal pending slowdown in rate hikes

[MongiIG]

More members of the Federal Open Market Committee voted to step back from its policy of aggressive rate raising. We look at the dollar. EUR/USD is now trading above the 200-day SMA, while GBP/USD is at a 3-month high.

 

 

 Jeremy Naylor | Writer, London | Publication date: Thursday 24 November 2022

Fed hints at less aggressive rate strategy

The US Federal Reserve (Fed) seems to be stepping back from its aggressive interest rate policy, where it's seen seven consecutive interest rate rises of 75 basis points (bp).

The minutes of the last meeting, which was held between the 1st and 2nd of November and released last night, suggests that the Fed is stepping back from that aggressive policy. It told the markets that a substantial majority of participants judged that a slowing in the pace of increases would soon be appropriate.

But it's noted that the smaller hikes would give policymakers a chance to evaluate the impact of the success of rate hikes. This is always interesting about monetary policy, and as much as it takes time for any movement in interest rates to take its effect on the economy in either direction, the central bank's next interest rate decision is the 14th of December.

Could we get 50bp or possibly even less in terms of a move next meeting?

US Dollar Basket

Now let's take a look at what happened with the Dollar Basket. It down relatively heavily yesterday, but significantly, closed at levels there not seen since the 15th of August. On the way down, indeed, in today's trade where we've got the Thanksgiving Day holiday, so volumes are likely to be muted just above the 200-day moving average (MA), which potentially is significant.

EUR/USD

But the momentum continues to point down, indicating that there is still this appetite to take this market further on down and this is doing a lot of good for other currencies, including the euro, which yesterday closed at above the 200-day moving average for the first time since April 2021. It's not too far away as well, from four-month highs on the EUR/USD chart.

GBP/USD

A quick update on some of the other crosses or one of the other major crosses. Sterling yesterday up at three-month highs and significantly closing well above the 120 level and indeed in today's trade building on that as well.

So dollar weakness across the board on the Fed's possible change in its strategy.