The US dollar is vulnerable to less appetizing FOMC minutes

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    Topics for conversation about the US dollar

    The US dollar Index (DXY) rebounds from new monthly low (104.64) as it tries to recover from the decline after a slowdown US Consumer Price Index (CPI)but Federal Open Market Committee (FOMC) Minutes could drag on the greenback if the central bank shows more willingness to implement smaller rate hikes.

    Technical outlook for the US dollar: neutral

    The DXY is unable to defend its opening range in August as signs of a slowdown in price growth dampen bets on another 75bp Fed rate hike, and the index could continue to trade to fresh monthly lows as FOMC minutes signal a change in the central bank’s approach to combat with inflation.

    The statement could signal a growing debate about unwinding the hiking cycle after the Fed funds rate hike to neutral, and the central bank could raise rates lower in the coming months as chairman Jerome Powell admits that “it will probably be appropriate to slow the pace of growth while we assess how our aggregate policy adjustments affect the economy and inflation.»

    In turn, the US dollar could face additional headwinds in the coming days as the FOMC minutes show changes in forward-looking monetary policy guidance, but the same from the central bank could lead to a bigger bounce in the greenback as Chairman Powell. insists that “another unusually large increase may be in order at our next meeting.”

    That said, the FOMC minutes could weigh on the near-term outlook for the US dollar as signs of slowing inflation question another 75 bp rate hikes and small hints of an impending shift in Fed policy could support the greenback as the central bank pursues restrictive policies.

    — Posted by David Song, Currency Strategist

    Follow me on Twitter at @DavidJSong

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