Fed Minutes Reveal Cautious Optimism: What’s Next for USD?
05 July 2023
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Key Points:
- Fed officials expect future rate hikes but held off in June due to concerns about over-tightening.
- The US Dollar strengthened, impacting GBP/USD and EUR/USD, with potential bearish targets for GBP/USD below 1.2700.
- EUR/USD declined further, breaking below the 20-day simple moving average.
During the June meeting, the Federal Reserve’s minutes, released on Wednesday, revealed a cautious approach despite expectations of future rate hikes. Most Fed officials anticipate tightening monetary policy further this year, with twelve out of eighteen participants projecting at least two rate hikes. However, they refrained from raising rates in June due to concerns about over-tightening and the lagging effects of previous increases.
The market consensus is that the Fed will raise interest rates by 25 basis points at the July policy meeting, a prospect that has bolstered the US Dollar. As a result, the DXY (US Dollar Index) climbed above 103.30, marking its highest level of the week. This strengthening of the USD has exerted downward pressure on both GBP/USD and EUR/USD.
In the currency markets, EUR/USD fell to the 1.0850 region, breaking below the 20-day simple moving average, turning the outlook for the Euro more bearish. For GBP/USD, a break below the 1.2700 level could lead to further declines, with potential targets at 1.2680, 1.2658, and 1.2647 based on Fibonacci retracement levels and previous pivot points.
