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US Dollar struggled on Wednesday following FOMC minutes, eyes of S&P PMIs figures from February

  • The DXY index trades below 104.00 in Wednesday's session after the release of January's FOMC meeting minutes.
  • Several FOMC members believe interest rates may have hit their peak.
  • Officials express concerns over challenges in meeting inflation goals.
  • The Fed's intention to keep rates untouched may fuel further gains for the US Dollar.

The US Dollar Index (DXY) experienced a slight setback, resting at 104.00 in Wednesday’s session with the Federal Reserve (Fed) minutes falling to trigger movements on the Greenback. 

The US economy, backed by robust data, shows resilience, reflected in the strength of the Greenback in 2024. Meanwhile, the Federal Reserve (Fed) maintains a hawkish stance, dismissive of near-term rate cuts and keen on keeping rates at restrictive levels. The market aligns progressively with this view, reinforcing expectations of a delayed easing cycle. 


Daily digest market movers: The US Dollar continues flat after FOMC minutes

  • The Federal Open Market Committee (FOMC) Minutes revealed that some members see the possibility that interest rates have reached their maximum, suggesting a cautious approach moving forward.
  • Concerns were raised by officials about the difficulties in achieving the inflation targets, highlighting uncertainties in the economic landscape.
  • The economic forecast is now considered more optimistic than previously thought in December, as per the views of certain policymakers.
  • As for now, the CME FedWatch Tool indicates a 20% chance of a rate cut at the next meeting in March and also remains low for May, reflecting the market sentiment leaning toward the Fed's intent to hold rates steady at restrictive levels. 
  • Markets are now pushing the start of the interest rate easing to June.
  • On Thursday, markets will closely look at weekly Initial Jobless Claims and preliminary February S&P PMIs from the US.

Technical analysis: DXY bulls stand weak and must recover the 100-day SMA


The indicators on the daily chart reflect a balance between buying and selling pressure. The Relative Strength Index (RSI) is in positive territory, but its negative slope suggests that buying momentum is losing steam. The Moving Average Convergence Divergence (MACD), with its decreasing green bars, implies that any bullish momentum is weakening and could potentially flip into a bearish bias.

Furthermore, the positioning of the index compared with its Simple Moving Averages (SMAs) provides an interesting perspective. Despite the bearish pressure, bulls have managed to keep the DXY above the 20-day and 200-day SMAs. This suggests that buyers continue to wield some strength in the broader time horizon.

However, the Dollar Index being below the 100-day SMA may hint at intermediate barriers for bullish movements. Hence, while the broader trend might still be inclined toward buyers, the short-term outlook presents a battle for control between bulls and bears.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Patricio Martín

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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