20.08.202011:50 Forex Analysis & Reviews: FOMC minutes triggered the dollar

The US currency has found itself once again on the so-called "roller coaster". This happened after the publication of the FOMC minutes. Experts recorded a sharp decline and rise in the USD during this process.

Before the publication of the FOMC minutes, there was a noticeable sinking of the US currency, but just before it, the dollar began to rise. These roller coasters were triggered by profit taking on short positions and a loss of risk appetite.

It can be recalled that the minutes of the FOMC meeting (FOMC Minutes, or "minutes") is a detailed report on the meeting of the Federal Open Market Committee of the US Federal Reserve. At these meetings, which take place 8 times a year, the economic and financial situation in the country is considered, the monetary policy of the regulator is determined and the final decision on the key rate is made. The FOMC minutes reveal the position of the Fed and individual members of the Committee, which does not always coincide with the generally accepted point of view. This report is extremely important for analysts: it not only introduces the current policy of the regulator, but also allows you to predict further actions of the Fed on monetary policy.

The release of "minutes" often provokes moderate volatility in the USD, especially if unfavorable economic trends in the country are fixed. At the moment, the dollar is faced with this, reacting first with a sharp decline, and then with an equally rapid rise. On the morning of Thursday, August 20, the day after the release of the report, the EUR/USD pair was already trading in a relatively calm range of 1.1842-1.1843.

Earlier, experts recorded the collapse of the US dollar relative to other currencies of the "Big Ten" (G10), primarily the "British" and "Canadian" currencies. Now, the dollar needs to maintain stability against the euro in the EUR/USD pair. The dollar's strengthening is hindered by the negative tone of the FOMC minutes and disappointing data on the US economy. The current situation has knocked the ground out from under the feet of investors who are counting on Fed's continued large-scale stimulus.

The disappointment of market participants is understandable. Earlier, the Fed did not rule out the extension of cash infusions, emphasizing their positive effect on the US economy. The shutdown of the regulator on the issue of monetary stimulus has left the investors and analysts confused. They were confused, not knowing in which direction the vector of economic movement would head. The current situation had a negative impact on the US currency, which, having found itself on a soaring price "swing", has not yet decided on its direction.

On the other hand, the Federal Reserve announced the effectiveness of the fiscal measures taken as part of the fight against the negative consequences of the COVID-19. The FOMC minutes also raised the issue of the need for additional monetary stimulus, but the US Congress did not come to a consensus on this matter. According to experts, the next fiscal push can give impulse to the market, as well as increase inflation and reduce real yields. However, experts emphasize that the entire blow will be taken by the US currency.

During the FOMC meeting, the issue of controlling the yield curve was discussed, but the department did not consider it necessary to limit it. Contrary to market expectations, the meeting did not raise the issue of introducing negative rates, which, as many believe, are now completely unnecessary. As for the control of the yield curve, this question remains open, and it will be possible to return to it in the event of fundamental changes.

According to analysts, the often repeated "roller coaster" undermines the dollar's position. The US currency, the dominant position of which is under threat, is completely useless. Experts are counting on further stabilization of the USD dynamics, but fear that the situation may get out of control.