Global FX Market Summary: FOMC Minutes, UK Inflation Data, USD, May 22 ,2024

Dmitry Chernovolov Market Analyst

FOMC minutes reveal Fed’s stance on inflation and rates. Hawkish hints could raise USD as investors seek higher returns. Dovish tones might weaken the dollar.

fundamental analysis
  1. Federal Reserve Minutes Release and Impact on the US Dollar:
  • FOMC Minutes: The Federal Open Market Committee (FOMC) is the policymaking body of the Federal Reserve. The minutes released detail the committee’s discussions and decisions regarding interest rates, monetary policy, and the overall economic outlook.
  • Clues for Investors: Investors will be looking for specific details in the minutes, such as:
    • Inflation Stance: Did the committee express concern about inflation being too high, too low, or just right?
    • Interest Rate Bias: Did the committee seem more likely to raise rates, lower rates, or keep them steady in the future?
    • Economic Growth Outlook: Is the committee optimistic or pessimistic about the future growth of the US economy?
  • Impact on the US Dollar:
    • Hawkish Tone: If the minutes suggest a more hawkish (concerned about inflation) stance, this could signal future interest rate hikes. This would generally strengthen the US Dollar as investors seek higher returns on US assets.
    • Dovish Tone: Conversely, a dovish (less concerned about inflation) tone could imply the Fed may keep rates low, potentially weakening the USD.
  1. UK Inflation Data and BoE Rate Cut Expectations:
  • UK Inflation: The recent data release showed that inflation in the UK is still rising, but at a slower pace than previously. This is measured by the Consumer Price Index (CPI), which tracks the change in prices of goods and services purchased by consumers.
  • BoE Rate Cut: The Bank of England (BoE) is responsible for setting interest rates in the UK. Lower inflation could reduce the urgency for the BoE to raise rates, but if inflation remains high, they may need to act to prevent it from spiraling further.
    • Reduced Chance of Rate Cut: If inflation is still higher than the BoE’s target, a rate cut becomes less likely. This could strengthen the Pound Sterling (GBP) as investors perceive a more stable and potentially tightening monetary policy.
    • Comparison to Eurozone: The BoE’s stance might also be influenced by the European Central Bank (ECB) and their plans for interest rates in the Eurozone (EUR).
  1. US Dollar Strength and Commodity Prices:
  • US Dollar as a Reserve Currency: The US Dollar is the world’s primary reserve currency, meaning it is held by central banks and financial institutions globally.
  • Impact on Commodity Prices: A strong US Dollar tends to make commodities like oil and gold (XAU/USD) more expensive for buyers using weaker currencies. This is because the price of the commodity is quoted in US Dollars.
    • Downward Pressure on Prices: If the FOMC minutes suggest a stronger USD, it could put downward pressure on commodity prices as they become relatively more expensive.
    • Other Factors Affecting Prices: It’s important to note that other factors, such as global supply and demand, also significantly impact commodity prices.

 

Upcoming economic news highlights:

 

Here are the top 5 most important news events, focusing on those with a high impact on major currencies:

  1. FOMC Minutes (USD, EUR, JPY): Released on May 22nd, these minutes detail the discussions of the Federal Open Market Committee, the US Federal Reserve’s policymaking body. Investors will be looking for clues about the Fed’s stance on inflation and future interest rate changes. A hawkish tone could strengthen the USD as it suggests tighter monetary policy, while a dovish tone could weaken it. The EUR and JPY could also be affected depending on how the Fed’s stance compares to the European Central Bank (ECB) and Bank of Japan (BoJ).
  2. S&P Global/CIPS Composite PMI (USD, GBP, EUR): Scheduled for May 23rd, this Purchasing Managers’ Index (PMI) surveys businesses about their activity in the manufacturing and services sectors. A strong PMI reading suggests economic growth, which could support the USD, GBP, and EUR.
  3. RBNZ Governor Orr Speech (NZD): Also on May 23rd, Governor Orr’s speech could significantly impact the New Zealand Dollar (NZD). Investors will be looking for clues about the Reserve Bank of New Zealand’s (RBNZ) monetary policy stance, particularly regarding future interest rates.
  4. Retail Sales (USD, GBP, EUR): Both the US and UK will release retail sales data for May on May 24th. Strong retail sales figures indicate healthy consumer spending, which can be a positive sign for economic growth and potentially strengthen the USD, GBP, and EUR.
  5. Gross Domestic Product (EUR): The Eurozone will release its GDP data for Q1 2024 on May 24th. This is a key indicator of the overall health of the European economy. A strong GDP reading could boost the EUR.

Note: While not in the top 5, the speech by SNB Chairman Jordan on May 24th could be important for the Swiss Franc (CHF).

 The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.

The information does not constitute advice or a recommendation on any course of action and does not take into account your personal circumstances, financial situation, or individual needs. We strongly recommend you seek independent professional advice or conduct your own independent research before acting upon any information contained in this article.

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