The Fed’s Meeting minutes report is finally out, giving indications on the regulator's stance. The market didn't get a clear signal whether the next rate hike will be 75 basis points or 50 basis points but it has so far priced in a 50 basis point hike. However, even though the next rate hike wasn't confirmed, the report did provide plenty of information on the Fed’s opinions on how to tackle inflation going forward, which is positive for traders.
The US Dollar Index increased in value yesterday after the release of the Fed’s Meeting minutes but slightly declined during today’s Asian session. However, as we approached the opening of the European and UK trading sessions the index again rose to 106.81. This is the highest we have seen since late July of this year. Traders are watching closely to determine how the dollar may react as we approach the 107.00 mark.
US Stocks
The US stock market saw some declines throughout yesterday’s trading session. All the major indices fell, with the Nasdaq witnessing the largest decline at 1.21% and the Dow Jones posting the smallest decline of just 0.50%. Market participants may have potentially exited the market due to uncertainty regarding the Meeting Minutes and the monetary policy.
Oil Prices
Oil has been under pressure for the last 24 hours, failing to maintain a bullish momentum when it forms. A lower price wave has been formed but the new OPEC Secretary General pulled out all the big guns to sway traders from believing the price will continue to decline. According to Mr Haitham, the level of supply is at high risk and the Chinese recession fears are being exaggerated. Both comments are positive for the price of oil if we follow traditional theories. Additionally, crude oil inventories also indicated a much lower supply (-7.1 million barrels).
EUR/USD
The EUR/USD, similarly to the US dollar, recorded a strong movement in favor of the dollar after the opening of the US trading session. This continued after the release of the Fed’s latest report. The price of the currency pair had mainly been moving sideways with smaller bullish and bearish trends throughout the past 3 weeks. And the price action seemed to always lose momentum at a recurring price, which created a larger price range measuring 130 PIPs.
However, the price has seen stronger trends since August 11, with the price forming a bearish trend measuring 190 PIPs, and only minor retracements. This morning the price is declining again and trying to break out of the latest retracement. Traders are looking closely to see if the asset is able to break to a new low. Currently, the instrument remains below all major moving averages.
The latest development and most influential factor is likely to be the Fed minutes. After the latest inflation figures, some traders had hoped that the monetary policy may remain in the neutral or even drop to the supportive zone. However, the report has advised that the level of inflation is still extremely high and the Fed will remain hawkish as long as inflation is far above its target of 2%. It should also be noted that the Fed’s target may potentially rise temporarily to 3% in the near future.
Most of the Fed members have remained hawkish with all of the FOMC approving a rate hike of 75 basis points and some even supporting a restrictive monetary policy, which would mean that interest rates would need to continue rising. The report had indicated that the Fed bankers are open to pausing the policy if data allowed them to. In other words, inflation is still too high. However, no indication was given signaling a rate decline either in 2022 nor in 2023.
In addition to monetary policy, the market was also influenced by other economic data. Poor July US retail sales figures were released yesterday, showing zero dynamics instead of the expected growth of 0.1%. Also, the American Association of Mortgage Bankers said that the demand for loans is at its lowest level since 2000 as first-time buyers and growing families are not willing to pay higher rates.
Major US companies have also advised that they are preparing for a recession. This may potentially be positive in the longer term as the recession would not shock the economy as it did in 2007. However, in the medium term, the uncertainty can trigger a lower confidence level. This would be negative for the stock market, but potentially positive for the dollar and other safe-haven assets.