Traders are assessing the minutes of the Federal Reserve (Fed) meeting in May, which showed that a number of U.S. Central Bank executives believe further monetary policy tightening is necessary.
“Some executives noted that another rate hike is likely needed at the next meetings because their projections suggest that the process of moving U.S. inflation toward the Fed’s 2 percent target may remain unacceptably slow,” the minutes said.
At the same time, “several participants of the meeting said that if the situation in the American economy develops in accordance with their expectations, further policy tightening after the May meeting may not be necessary,” the document notes.
Judging by the quotations of futures on the rate level, the chances for the Federal Reserve to increase it by 25 bps in June are estimated by the market at 30%, the probability of raising the rate by the end of July – at 55%, according to the CME Group.
The international rating agency Fitch on Wednesday placed the long-term issuer default rating of the USA “AAA” on the review with the “negative” forecast in connection with the delay of negotiations on the issue of the limit of the country’s borrowings.
The agency’s press release notes that the political bias of the parties involved in discussing the issue is preventing an agreement to raise or suspend the U.S. government debt ceiling, while the deadline for a decision is approaching.
Ironically, this factor is also supporting the dollar as it boosts investor inflows into safe haven assets, Trading Economics noted.
The ICE-calculated index showing the dynamics of the dollar against six currencies (euro, Swiss franc, yen, Canadian dollar, pound sterling and Swedish krona) is adding 0.15%, while the broader WSJ Dollar Index is adding 0.16%.
The euro/dollar pair is trading at $1.0732 as of 9:05 a.m. Moscow time, up from $1.0752 at the close of the previous session.
The pound exchange rate dropped to $1.2343, compared to $1.2465 the day before.
The value of the U.S. currency against the yen is 139.53 yen against 139.48 yen by the end of trading on Wednesday.
