The USD has been extremely bullish this year, until late September when the JPY crashed lower along with the GBP. But after authorities intervened, markets stabilized and sentiment began to improve. This weakened the USD as the only safe haven left. The USD retreated lower until late last week when it started to see some gains, which continued into Monday this week.
But yesterday’s contraction in US services reduced the chances of the FED sustaining the pace of rate hikes and the USD resumed its retreat. Although the markets waited for the FOMC minutes from the last meeting to see where the FED stood and they seem to be turning, which gave the USD another push.
FOMC minutes of the November 22 meeting
- A substantial majority of participants at the November meeting believed that a slowdown in the pace of rate hikes would likely still be appropriate
- A slower pace of rate hikes would better enable the FOMC to assess progress toward its goals given the uncertain slowdowns surrounding monetary policy
- Some participants said that slowing the pace of interest rate hikes could reduce the risks of the financial system; others who are slowing down must wait for more progress inflation
- With monetary policy approaching a sufficiently restrictive level, participants emphasized that the ultimate destination of Fed Funds rates has become more important than pace
- Some participants noted that more restrictive policies were consistent with risk management; some noted an increasing risk of overtightening
- Participants agreed that there was very little sign of an update in inflationary pressures
- Participants generally noted that risks to the inflation outlook remain on the upside
- All participants agree that a 75 basis point increase was appropriate
- Many participants identified significant uncertainty about the final level of Fed Funds rates needed to contain inflation
- Many thought the final rate was higher than previously expected
- Participants saw that the labor market remained tight; many noted that there are tentative signs that it could slowly move towards a better balance between supply and demand
- Despite heightened interest rate volatility suggesting tight liquidity conditions, the functioning of the Treasury securities market is orderly
- Click here for the full text of the minutes of the meeting