The US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, eased below the 96 handle in the late NA session as minutes from FOMC’s June meeting failed to provide an opportunity to buy more US dollars. At the moment, the index is at 95.97, a tad below its opening level.
Fed policymakers seemed to have a split in opinion regarding the outlook for inflation and its potential impact on the future monetary policy decisions. While some officials think that the medium-term inflation outlook is unchanged despite the recent dismal data, others said that the weakness in price growth made them less comfortable with the current implied path of rate hikes and voiced their concerns by arguing that further rate hikes might prove inconsistent with a sustained return of inflation.
- FOMC Minutes: Policymakers saw recent increase in import prices as consistent with inflation trend in medium term
Nevertheless, the market reaction was too little to change the rate hike expectations. The CME Group FedWatch tool showed that the probability of a rate hike in September increased to 18.4% from 18% while the odds of a December rate hike remained virtually unchanged around the 50% mark.
Before the Nonfarm Payroll numbers are released from the U.S. on Friday, the index could have a difficult time finding the next catalyst.
96.25/30 (daily high/Jun. 28 high) area could be seen as the first hurdle ahead of 97.15 (Jun. 27 high) and 97.60 (Jun. 15 high). On the downside, supports align at 95.70 (Jun. 28 low), 95 (psychological level) and 94.40 (Aug. 16, 2016, low).