US Dollar steady ahead of Federal Reserve minutes

Dollar steady as investors await Fed minutes
Dollar steady as investors await Fed minutes

by 5paisa Research Team Last Updated: Jan 03, 2023 - 05:04 pm 4.7k Views

The US Fed announces the minutes of the Federal Reserve meeting a full 3 weeks after the Fed statement. The Fed minutes are expected to be announced on Wednesday 03rd January 2023. The Fed minutes are expected to throw light on a number of things. Firstly, it is likely to throw light on the trajectory and pace of rate hikes. Secondly, the dot plot chart of the FOMC members will give an idea of the extent to which the Fed will stay hawkish on rates. For now, the Fed has indicated that another 3 rounds of 25 bps rate hikes could be on the cards, but then Fed has also put in a clause that it would not relent on rate hikes as long as inflation stayed elevated. That is where the minutes could throw more light.

One parameter that is being closely watched is the Bloomberg Dollar Index (DXY). The Dollar Index measures the dollar value against a basket of 6 major global currencies. For 2023, the enthusiasm and bullishness of 2022 is just not visible. In 2022, the Dollar index had rallied by 8%; the best rally since 2015. However, the dollar index has been off to a tepid start in 2023. It looks like most of the Fed hawkishness is already factored into the dollar index for now, which is not it may not be reacting too much. For now, investors are waiting in the side lines till the economic data, including the Fed minutes are announced. That would give a clearer understanding of what could be the Fed thinking on inflation and on interest rates.

In the year 2022, the rally in the dollar index was hardly surprising. The Fed had delivered 4 consecutive rate hikes of 75 basis points each followed by the last hike of 50 bps in December 2022. Between March 2022 and December 2022, the Fed had hiked rates by a full 425 basis points from the range of 0.00% to 0.25% all the way to the range of 4.25% to 4.50%. The clarity will be available when the minutes are put out on Wednesday. However, economists are of the view that the minutes could hint at a greater schism in the view of the members with members veering towards opposite directions, depending on the extent of hawkishness or the extent of dovishness.

Brokerage houses like Citi are pegging another 50 bps rate hikes in February, which would be more than expected. That could possibly give a much bigger boost to the dollar value and lead to the dollar index bouncing back above the 105 levels and possible once again trend towards the 110 levels. Among other data points, investors will also be looking at the payrolls report due to be released on Friday this week. However, it is not just the dollar, but other currencies are also strengthening and that could also have a bearing on the value of the dollar index. That could also have a bearing apart from the data flows.

For now, it is not just the Fed that is being hawkish, but even the Bank of Japan and the ECB are likely to tighten with higher rates to fight rising inflation. As long as the energy crisis persists, inflation is likely to be high and that would mean other central banks would also be tightening and eventually hardening their currency. The next few days could be interesting in terms of the movement of the US dollar.


How do you rate this article?

or

Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Disclaimer

Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.

Open Free Demat Account

Resend OTP
Please Enter OTP
Account belongs to

By proceeding, you agree to the T&C.

Latest News
Sahana Systems IPO GMP (Grey Market Premium)

Sahana Systems IPO worth ₹32.74 crore comprises entirely of a fresh issue of shares by the company. The price band has been fixed in the range of ₹132 to ₹135.

  • Jun 07, 2023
Spectrum Talent Management IPO GMP (Grey Market Premium)

The ₹105.14 crore IPO of Spectrum Talent Management IPO comprises entirely of a combination of a fresh issue of shares and an offer for sale (OFS) by promoters and early shareholders.

  • Jun 07, 2023
IKIO Lighting IPO GMP (Grey Market Premium)

IKIO Lighting IPO worth ₹607 crore comprises of an offer for sale and also of a fresh issue of shares. The offer for sale (OFS) component is by the promoters and early shareholders of the company.

  • Jun 07, 2023

Start Investing Now!

Open Free Demat Account in 5 mins

Enter Valid Mobile Number