Minutes restored relative calm.
Last night we had the FED May meeting minute, which was more reassuring than expected, as it was clearly showing that FED still believes that it can control the market. Members are optimists about the fate of inflation and possible recession. Detail of minutes shows that FOMC increased the PCE inflation forecast in May monetary policy meeting, expecting it to rise by 4.3% this year but fall to 2.5% and 2.1%respectivey in 2023 and 2024. Participants believed that labor market shortages would continue, including wage pressures that will remain high. Unlike earlier guesses, inflation is not peaked yet. However, it can slow down faster than previous predictions.
Minutes also say that FOMC will focus more on faster normalization of FED monetary policy, agreeing that another two 50pb rate hikes with a pause after that, probably in September, can be a good decision. Regarding shrinking the balance sheet, some participants thought it would be appropriate to consider the sale of mortgage-backed securities (MBS).
After the publication of the minutes, the market got more confidence that FED would not be so aggressive in its rate hike policies. This outlook helped the market's overall sentiment to close higher. Last night on Wall Street, Dow Jones Industrial Average closed with a 0.6% gain, SP500 was 0.95% higher in its closed price, and NASDAQ gained 1.5%.
With less aggressive expected policies, the US dollar index also eased a bit after its earlier slight bulls. On the other hand, since geopolitical tensions are still there, the US dollar safe-haven would not let it fall too much for now.
For now, technically, we can see that DXY is trying to create a side movement between 101 and 103 marks with crucial support at 99.80.
