The dollar index (DXY00) on Wednesday recovered from early losses and rose +0.11%, as the Federal Reserve's hawkish minutes from its September meeting signaled that policymakers remain committed to raising interest rates in order to combat inflation.
In the minutes, released on Wednesday afternoon, Fed officials noted that "inflation remains unacceptably high" and that the Committee is "strongly committed to bringing inflation back to its 2 percent objective." The minutes also showed that policymakers expect to raise the fed funds target rate by another 50 basis points at their next meeting in November.
The Fed's hawkish stance supported the dollar, which had come under pressure earlier in the day on weaker Treasury yields and strength in stocks. The dollar also found support from the fact that the Fed raised its 2023 U.S. GDP forecast and cut its unemployment and inflation forecasts.
Euro Falls on Hawkish Fed Minutes
The euro (EUR/USD) on Wednesday fell by -0.10% against the dollar, as the Fed's hawkish minutes from its September meeting weighed on the euro.
The minutes showed that policymakers expect to raise the fed funds target rate by another 50 basis points at their next meeting in November, which is more hawkish than many market participants had expected. The minutes also noted that inflation remains "unacceptably high" and that the Committee is "strongly committed to bringing inflation back to its 2 percent objective."
The Fed's hawkish stance supported the dollar and weighed on the euro. The euro had also come under pressure earlier in the day on an easing of price pressures in Germany, with the German August producer price index (PPI) falling -12.6% year-over-year, the largest decline since the data series began in 1977.
Yen Slides to 10-1/2 Month Low Against Dollar
The yen (USD/JPY) on Wednesday rose +0.16% against the dollar, reaching a 10-1/2 month low.
The yen's decline was driven by the central bank divergence between the Bank of Japan (BOJ) and the Federal Reserve. The Fed is in the midst of a rate hiking cycle, while the BOJ is maintaining record low interest rates. This divergence has been weighing on the yen in recent months, as investors have sought out higher-yielding currencies.
The yen also came under pressure on Wednesday from lower Treasury yields. Treasury yields have been falling in recent weeks, as investors have become more concerned about a potential recession in the United States. However, the Fed's hawkish minutes from its September meeting helped to support Treasury yields on Wednesday, which weighed on the yen.
Precious Metals Prices Close Moderately Higher
Precious metals prices on Wednesday closed moderately higher, with gold and silver posting 2-week highs. A weaker dollar and lower global bond yields on Wednesday were supportive of precious metals.
Gold (GCV3) on Wednesday closed +13.30 (+0.69%), and silver (SIZ23) closed up +0.380 (+1.62%). Gains in gold were limited by long liquidation pressures after long gold holdings in ETFs fell to a 3-1/2 year low on Tuesday.
Precious metals prices gave up more than half of their advance Wednesday afternoon in after-hours trading after the Federal Reserve signaled higher interest rates for longer following the 2-day FOMC meeting.
Overall, the dollar index rose on Wednesday as the Fed's hawkish minutes from its September meeting signaled that policymakers remain committed to raising interest rates. The euro fell against the dollar on the Fed's hawkish stance and an easing of price pressures in Germany. The yen slid to a 10-1/2 month low against the dollar on central bank divergence and lower Treasury yields. Precious metals prices closed moderately higher on a weaker dollar and lower global bond yields, but gave up more than half of their advance in after-hours trading after the Fed signaled higher interest rates for longer.
