US Dollar Strengthened On Hawkish Fed Minutes

US dollar hit the highest since May 2020 this week after the release of the minutes from the Fed’s March FOMC meeting. The dollar index rose to 99.778 and later closed at 99.7.

Hawkish Fed Minutes

As revealed in the Fed minutes of the March FOMC meeting, a significant number of officials concurred with the idea of a more aggressive approach to balance sheet reductions. One Fed representative Esther George suggested a 50 basis-point hike. Receive the latest news here

“Many participants noted that—with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level—they would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting. A number of these participants indicated, however, that, in light of greater near-term uncertainty associated with Russia’s invasion of Ukraine, they judged that a 25 basis point increase would be appropriate at this meeting,” the minutes said.

“Many participants noted that one or more 50-basis-point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.”

The minutes also revealed that the central bank may begin reducing its balance sheet in May. As the Fed doubled its balance sheet during the pandemic, it currently has two plans to trim it down. The first way is to cut down $60 billion in treasury yields and $35 billion in mortgage-backed securities every month. The other option is a gradual reduction. Start with minor reductions and slowly increase the amount to its target “over a period of three months or modestly longer if market conditions warrant”.

Bullish Outlook

According to a poll conducted by forex analysts, many of the respondents agreed that the greenback will remain strong as long as the Fed remains a hawkish approach. The dollar index has gained 4% so far this year, and close to half of the increase happened in March. Check out the latest price updates on the hottest FX pairs

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This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.