The U.S. Dollar stayed in tight ranges after gaining based on hawkish commentary from Fed members ahead of the FOMC Minutes today.
Overview
Fed Governor Lael Brainard, typically a dovish member, said that fighting inflation at the moment is “paramount” and called for shedding away the Fed’s balance sheet more rapidly. The Fed is worried that the war’s negative effects on the global economy will only worsen the supply chain and make things more expensive.
Additionally, the buck is up on safe-haven sentiment based on concerns that COVID-related shutdowns in Asia will hamper global growth for this second quarter. Expectations of significant Fed tightening are the highest in three decades, with traders expecting a total of 200 more basis points to the interest rate by the end of the year.
Consequently, stocks are down, and all other currencies are mostly weaker. It is clearly central bank policy divergence will keep the greenback buoyant in the short-term, but history has proven negative for the buck when the Fed has pushed for contractionary monetary action.
What to Watch Today…
- FOMC Minutes 2 PM
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EUR
The Euro remains weakened following yesterday’s positive dollar moves and the prospect of a long conflict in Ukraine that will require more accountability from Russia as well as punishment. The G-7 added more sanctions that further isolate Russian banks and businesses.
A coal embargo by the European Union seems unlikely It is possible that Russia will be defaulting on Euro-bonds payments as processing must now be done in Russian Rubles per the Finance Ministry. Volatility levels are likely to be picking up as the economic repercussions keep growing and affecting very established systems of interdependence.
GBP
Pound Sterling may be up for gains after data revealed better-than-expected Purchasing Managers Indices across sectors. Both Services and Construction PMIs expanded more than forecast, with the former impressing and bringing up the Composite reading into the 60s range.
A reading of 50 and above indicates that managers want to spend more on supplies and invest more as they see a positive economic dynamic. Tightening in the U.S. may keep Sterling subdued, but rates are around where we thought.
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