FINAM FOREX: Dollar strengthens after publication of FOMC meeting minutes


20 May 2021

Andrey Maslov, analyst of the FINAM Group of Companies

On Thursday, May 20, EUR / USD rallied 0.16% to reach 1.2192. The DXY dollar index is down 0.15% and is trading at 90.06. As a result of yesterday’s session, the US currency strengthened after the publication of the minutes of the meeting of the Federal Open Market Committee (FOMC), in which a proposal was found to reduce the purchases of assets by the central bank. Against this background, yesterday the yield on 10-year US government bonds rose above 1.69%, and now is at 1.66%.

The minutes of the last meeting of the Federal Open Market Committee of the Federal Reserve, released on Wednesday, revealed language that indicated that some of the committee members suggested considering the possibility of reducing the volume of purchases of assets if the economic recovery in the United States continues at an accelerated pace.

The news caused a mixed reaction among investors, as previously Fed Chairman Jerome Powell and other Fed officials said that the central bank will adhere to its current ultra-soft monetary policy, and the rise in inflation is temporary and should not affect the Fed’s policy. However, since the FOMC meeting, a rather weak report on the labor market for April has already been released, on the basis of which the vice-chairman of the FRS R. Clarida (like many other FRS officials) saw confirmation of the previous conclusion that it is too early to reduce the monetary support for the economy. Thus, if the next employment data, which will be released on June 3, is strong enough, the markets may re-think that the Fed may announce a reduction in asset purchases.

As for macroeconomic statistics, the final inflation data for April became known in the eurozone yesterday. Thus, the inflation rate was 1.6% (yoy), which turned out to be higher than the results for the previous period of 1.3% (yoy) and is similar to the preliminary results. The core inflation rate was 0.7% (YoY), which was below the March result of 0.9% (YoY) and the preliminary results of 0.8% (YoY). Also in the eurozone was published a new car registration figure for April. The number of new car registrations increased by 218.6% (YoY) compared with an increase of 87.3% (YoY) in March, due to the start of the summer auto season in Europe.

No important macroeconomic data was released in the US.

Today we should pay attention to the publication in the US of data on initial claims for unemployment benefits for the week, as well as on the index of business activity in the manufacturing sector from the Federal Reserve Bank of Philadelphia for May. In the eurozone, data on the volume of construction for March will be published, and in Germany, the producer price index for April will be known.

EUR / USD continues to be above the support line at 1.2150 and is trading at 1.2192. Stochastic lines are in the overbought zone, which indicates the limited upside potential for the instrument in the short term.

This information is not investment advice.

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