US Dollar May Rise as FOMC Minutes Flag Fed Policy Standstill

US Dollar Chart

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  • US Dollar selloff stalls as a Fed process opinion moves divided from dovish extremes
  • Officials signaling that financial process might have reached a Covid-fighting limits
  • FOMC mins might echo hands-off stance, souring market-wide risk appetite

The US Dollar has been stabilizing given early- to mid-August after a steep decrease a mid-March Covid conflict peak. The selloff reflected fading safety-minded shopping as a Fed’s expanded impulse bid – many notably, an open-ended QE module – cooled credit marketplace highlight and regenerated risk appetite. The slip found a building as a US executive bank signaled a focus toward wait-and-see mode.

Tellingly, a Greenback found a building only as a produce advantage enjoyed by benchmark 10-year US Treasury holds opposite vital general alternatives began to carefully expand. The slope of a US produce bend steepened in tandem, signaling that investors’ Fed financial process opinion was commencement to pierce divided from dovish extremes.

US Dollar vs Treasury widespread

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This transition is unchanging with a tangible focus in policymakers’ rhetoric. Fed Chair Jerome Powell and association have argued that – while they have no goal of tightening in a nearby tenure – there is small that financial process can do to opposite a detriment of mercantile activity disrupted by lockdowns directed during containing a coronavirus outbreak.

The account is compelling. While a Fed can safeguard that credit markets sojourn abundantly granted with liquidity, it can't force borrowing to financial a pickup in direct to indeed occur. Mr Powell and his colleagues have customarily called on mercantile authorities to step into a breach. Government spending is means to during slightest in partial reinstate mislaid private-sector activity. Monetary process cannot.

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This proof is not altered by negligence mercantile liberation amid another upswell in viral cases and a follow-on reinstatement of lockdowns of varying astringency opposite a US, nor a ongoing deadlock in mercantile impulse negotiations. Indeed, PMI consult information due subsequent week is approaching to uncover that manufacturing- and service-sector activity expansion slowed in November.

With this in mind, a arriving recover of mins from this month’s FOMC assembly might enthuse US Dollar gains. If policymakers again claim that there is small to be finished for financial process besides a government of credit costs, this seems expected to green risk ardour – reviving direct for breakwater resources including a Greenback – even as it underpins relations yield-based support for a bellwether currency.

— Written by Ilya Spivak, Head Strategist, APAC during

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