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GBP/USD goes up and down after the publication of the aggressive FOMC Minutes

  • GBP/USD is on the defensive as the US dollar rallies on the FOMC aggressive line.
  • The FOMC Minutes showed Federal Reserve officials expressing anxiety about inflation.

The GBP was the strongest currency immediately after the release of the Federal Open Market Committee Minutes, jumping to 1.3107 before falling to the minutes’ low of 1.3056 as the US dollar finally broke higher.

The DXY, an index that measures the dollar against a basket of six rival currencies, hit a 2022 high of 99,769 after minutes showed Federal Reserve officials expressing anxiety about inflation. Members have finalized plans to reduce bond holdings in an aggressive effort to curb rising prices. The Fed is preparing to shrink the balance sheet by $9 trillion at a rate of about $95 billion per month.

“All options reviewed by policymakers featured a faster pace of balance sheet break-even than in the 2017-19 episode,” the minutes say.

Many officials say one or more 50bp rate hikes may be warranted, and many members favored a 50bp hike in March if there were no war in Ukraine.

Meanwhile, some market commentators have begun to speculate that the BoE might think twice before raising interest rates beyond May. “The BoE expects some slack to open up in the labor market going forward. If this starts to happen, it can be assumed that wage inflation will be repressed and that higher food and energy prices will slow demand for goods with elastic demand. This will lessen the need for further rate hikes,” Rabobank analysts argued.

Technical levels

Source: Fx Street

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