High-profile geopolitical events overshadowed the debate about the fate of the Fed interest rate. The growth of anti-risk sentiment supports the US currency, despite the controversial macroeconomic statistics of the United States. The dollar enjoys the status of a defensive asset, playing the role of a kind of "security island" for investors. And yet, despite the deepening trade conflict between the United States and China, monetary policy prospects should remain in sight of traders. Indeed, over the past year and a half, Beijing and Washington have repeatedly "beat the pots" and left the negotiation process, but after a while, they still sat down at the negotiating table. If such a scenario is realized this time, the focus of the market will shift again to the Fed.
In this context, today's release is important. We are talking about the minutes of the last Fed meeting, which was held in early May. It is worth recalling that this meeting left a rather ambiguous impression. After the publication of the accompanying statement, the dollar collapsed throughout the market but Jerome Powell's subsequent comments were in favor of the US currency. First of all, the head of the Fed has smoothed over the "sharp corners" of the accompanying statement, refuting market rumors about the next steps of the regulator towards easing monetary policy. At his traditional press conference, he stated that he currently does not see compelling reasons for changing the base interest rate both upwards and downwards.
On the one hand, he acknowledged that core inflation declined "quite unexpectedly," but this dynamic is due to "temporary factors in his opinion. Such rhetoric of Powell surprised market participants as his words went against the rhetoric of the accompanying statement. According to the text of the final communique, the Fed members do not consider the current trend to be "temporary" since, in their opinion, we can speak of a stable trend here. In other words, Fed members do not share the optimistic position of the head of the regulator. Today's protocol will make it possible to understand how deeply Fed members are concerned about the weak dynamics of inflation growth in the context of monetary policy prospects. If the majority of them voiced "dovish" rhetoric, the dollar can be under some pressure as rumored.
But here it is worth mentioning right away that today's release may have a limited impact on the market if only traders see nothing "supernatural" there. First, after the May meeting, many Fed members have already expressed their position on the current situation based on more recent data. In particular, Jerome Powell yesterday spoke out against lowering interest rates (at least in the short term) due to the high level of corporate debt. Many Fed members, in addition to such consistent "dovish" like Bullard or Kashkari, also spoke in favor of maintaining a waiting position.
As for statistics, the situation here is ambiguous. Against the background of strong growth in the labor market and the GDP indicator, the inflation dynamics still leaves much to be desired. In particular, the US consumer price index showed a controversial result. It rose to two percent in annual terms but did not reach the forecast level of 2.1% and showed a negative trend in the indicator on a monthly basis. The index dropped to 0.3% instead of the expected growth to 0.5%.
Core inflation also turned out to be motley while the indicator rose to 2.1% on an annualized basis, as predicted by the experts. Then in monthly terms, the core index unexpectedly slowed down to 0.1% instead of the expected growth to 0.2%. Also in May, another alarming signal was sounded in the form of weak wage growth. Contrary to the positive forecasts of most analysts, the indicator remained at the level of March, where it grew by 0.2% in monthly terms and by 3.2% in annual terms. Experts expected an increase of 0.3% and 3.3%, respectively. In general, the result is not the worst but in this case, the trend itself is important, which is, to put it mildly unconvincing.
Thus, today's release may remind traders of the weak side of the US economy: inflationary indicators still show disappointing dynamics, despite the growth of other key macroeconomic indicators. The minutes of the May meeting of the Fed will make it possible to understand how strongly the regulators are concerned about this fact and how many of them are ready to consider the option of easing monetary policy in the foreseeable future. If the protocol rhetoric does not like dollar bulls, the EUR/USD pair will have a chance to develop a corrective movement with the first target of 1.1190 (the Bollinger Bands middle line on the daily chart) and the subsequent target of 1.1220 (Tenkan-sen and Kijun-sen lines).
