FOMC Confirms Hawkish, US Dollar Consolidates

The FOMC minutes presented readiness to act aggressively in tackling rising inflation, thereby supporting the appreciation of the US dollar.

The US dollar index (DXY) is consolidating in the 99.50s range at the start of the European session today (7/April), following the release of the minutes of the FOMC meeting last night. The minutes presented the readiness of Federal Reserve officials to act aggressively in tackling rising inflation, thereby supporting the appreciation of the US dollar. On the other hand, the euro faces a new threat from the heated political climate in France.

FOMC Confirms Hawkish, US Dollar Consolidates

DXY Daily chart via TradingView

Minutes of the March FOMC meeting showed "many" attendees were poised to raise interest rates by a magnitude of 50 basis points in the months ahead. They also implied approval of plans to streamline the $95 billion per month of central bank balance sheets that have ballooned during the pandemic.

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These views were generally in line with market expectations, so they did not trigger a significant appreciation in the US dollar index. However, it should be noted that monetary tightening measures are likely to be realized from May and have the potential to support the appreciation of the US dollar going forward.

“Minutes lend support to the view that a 'hawkish peak' is yet to be reached at the Fed,” said analysts from OCBC Bank Singapore quoted by Reuters. “In that context, risk-reward supports the dollar to strengthen in the medium term, or at least supports the dollar to hold on to a supported position. With the dollar index breaking the 99.40/50 resistance, the next target is likely the 100.00 threshold.”

Commodity currencies corrected following the release of the FOMC minutes, although the Australian central bank has just announced plans to raise interest rates in the near future. USD/JPY holds ground highs around the 123.80s, while EUR/USD is glued near a month low at 1.0895. The Japanese (BoJ) and European (ECB) central banks are the two most dovish monetary authorities among the major central banks.

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Traders of the next major pairs will be watching for the release of the minutes of the ECB's March meeting in the next few hours. The minutes will likely outline the ECB's plan to tackle rising inflation amid risks of recession. In addition, developments surrounding the Russia-Ukrainian war and the French presidential election have also been highlighted.

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The survey results show that the vote for the French presidential candidate from the eurosceptic camp, Marine Le Pen, has increased to a narrow margin with the incumbent Emmanuel Macron. This sparked a bit of apprehension ahead of the weekend's vote. A president who is eurosceptic has the potential to shake up the unity of the European Union and the Eurozone.