A majority of Fed members favoured slowing the pace of interest rate increases “soon” in order to assess the lagged impact of monetary policy on the economy and inflation. The Fed minutes state that “a substantial majority of participants judged that a slower pace of rate increases would likely be appropriate soon”; continuing “that the uncertain lags and amplitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited for the importance of such an assessment”.
EURUSD is up for the third consecutive day so far, and is currently at the 1.0404 level. This is after it peaked at 1.0447, as last night’s Fed minutes release benefited the Euro against the Dollar, with the USDIndex losing its safe-haven status (see below).
Recent data confirmed that inflation was slowing, but that it was still well above the 2% target, and several members persisted in propagating the idea of less hawkish rate hikes, a possibility that market participants had anticipated. However, some members of the US central bank preferred to wait until “the policy stance is more clearly in restrictive territory and there are more concrete signs of a significant reduction in inflationary pressures”.
According to CMEGROUP, 75.8% of investors expect the Federal Reserve to slow the pace of rate hikes to 0.5% in December. With this slowdown in the pace of rate hikes largely priced in by market participants, attention is turning to the final Fed Funds rate, i.e. the maximum level. This factor was widely scrutinised by Fed members, although they acknowledged that there is still uncertainty as to whether they will reach a higher figure in order to meet the initial target. “Participants commented that there was significant uncertainty about the final level of the federal funds rate needed to meet the Committee’s objectives,” the minutes note.
It is important to remember that the EURUSD pair had benefited yesterday morning from a series of mostly better than expected European PMIs.
EURUSD is currently above its cloud, its Kijun (Lv) and its Tenkan (Lj) at the level of 1.0433; the Lagging Span (Lb) is above the cloud and clearly signifies a bullish moment. The price could reach 1.0485 then 1.0571; on the other hand, if the price starts to fall again, it could reach 1.0162 and then head towards parity (1.0000).