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The release of Fed Minutes has resulted in a decline in interest rates, sending the US Dollar Index down to 106.50

Alina Haynes

Aug 18, 2022 11:20

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In an effort to consolidate weekly gains, the US Dollar Index (DXY) is trading near its intraday low of 106.50 again during Thursday's Asian session. On Monday and Wednesday, the value of the greenback rose sharply due to recession worries and higher interest rates, but dropped again after the release of the Fed Minutes.

 

According to Reuters's analysis of minutes from the current Federal Open Market Committee (FOMC), officials indicated a willingness to decrease the pace of interest rate hikes in response to signs of a slowdown in inflation. Fed members said in the minutes from their July meeting, which were posted on Wednesday, that the pace of future rate hikes would depend on new economic data and evaluations of how the economy was adapting to the rate hikes that had already been approved.

 

At press time, the yield on the 10-year US Treasury note had dropped one basis point (bp) from its prior week's high near 2.90 percent after the release of the Fed Minutes.

 

Expectations of further stimulus from China also looked to have reduced demand for safe havens, which put downward pressure on US bond rates alongside the FOMC Minutes. China may issue an additional 1.5 trillion yuan in debt as part of an investment push, according to china securities news. However, risk aversion appears to remain on the table due to concerns over China's ability to overcome fears of a recession, especially in the wake of the covid issues and hot wave.

 

New statements from the Office of the United States Trade Representative suggest that formal negotiations between the United States and Taiwan may begin on a trade initiative in early fall of this year, which may exacerbate existing concerns.

 

Prior to the announcement of the US Retail Sales report for July, bond coupons rose. U.S. retail sales increased by 0.0% in July, missing the 0.1% mark economists had predicted and revising down the 0.8% gain seen in June. However, the Retail Sales Control Group estimates improved, going from 0.6% (the market consensus) to 0.8% (the updated figure).

 

Fed Governor Michelle Bowman made a similar point, saying "High inflation and robust employment will undoubtedly exert some pressure on the labor and employment markets."

 

In August, DXY traders may find entertainment in the weekly announcements of US Initial Jobless Claims and Philadelphia Fed Manufacturing Survey. The most crucial things to keep an eye on for fresh impetus are recession worries and Fed worries.

 

DXY bears are being encouraged to retest the 106.20 21-day moving average (DMA) support by the formation of a double top near 106.95.


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