Could the FOMC minutes help boost a struggling dollar?

Though the US dollar saw a modest rebound late on Tuesday, the past two weeks have generally been characterized by a sharp plunge for the dollar against other major currencies, most notably the euro and Swiss franc. Pressure on the dollar has been exacerbated by a shaky US political landscape as well as significant uncertainties surrounding the future path of Federal Reserve monetary policy. Wednesday afternoon brings the release of minutes from the most recent Fed meeting, which could help to provide somewhat more clarity on this path.

In the last Federal Open Market Committee (FOMC) meeting in early May, members voted unanimously to keep rates on hold at 0.75-1.00%, as widely expected. One surprise, however, was found in the Fed’s discussion of its balance sheet policy. Although there had been some chatter prior to the meeting that the Fed may be looking to reduce its massive asset holdings, the FOMC statement once again asserted that the Fed is maintaining its existing policy with respect to its balance sheet “until normalization of the level of the federal funds rate is well under way.” Aside from this, the statement was somewhat mixed, retaining some characteristically dovish aspects while also sounding rather optimistic about the US economy despite less-than-stellar economic data that had recently been released at the time.

Since that FOMC meeting on May 3rd, much has occurred to shift the US economic and political landscape. Of particular note has been the potentially severe political scandal that has since gripped the Trump Administration. Political concerns have recently played a key role in pressuring the US dollar, as Trump’s latest plight has put into question his ability to implement the pro-growth and potentially dollar-boosting policies that he has promised.

On more encouraging news, the latest US jobs report two days after May’s FOMC meeting was resoundingly positive, showing that the previous month's disappointing jobs data may just have been an anomaly in an otherwise solid US employment environment. Total non-farm payroll employment for April was reported to have increased by 211,000 jobs, significantly greater than the ~190,000 jobs that were expected. April’s unemployment rate also improved by dropping down to 4.4%, the lowest in ten years, from the previous month’s 4.5% and against a prior forecast of 4.6%.

Despite these new developments since the FOMC meeting, Wednesday’s FOMC minutes should nevertheless provide some useful hints about how the Fed sees the US economy and monetary policy evolve going forward. Dollar traders will be closely scrutinizing the minutes for clues as to how the Fed may plan on addressing balance sheet reduction, as well as whether the two more expected rate hikes this year, including a heavily-anticipated one in mid-June, may still be in the cards. With any indication from the FOMC minutes of more hawkish leanings towards policy tightening than might be expected, the besieged dollar could potentially receive a long-awaited boost and relief rally.

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