US Dollar Index climbs modestly as FOMC minutes confirm December rate hike

• FOMC minutes show that almost all participants see another rate hike “fairly soon”.
• CME Group FedWatch’s rate hike probability stays unchanged at 82.7%.

After dropping to 96.78 with the initial reaction to the FOMC’s November meeting minutes, the US Dollar Index, which tracks the greenback against a basket of six major currencies, rebounded and advanced to 96.95 before losing its momentum. As of writing, the index was flat on the day at 96.83.

According to the FOMC’s official statement, almost all participants supported the view that another rate hike in the target range for the federal funds rate was likely to be warranted “fairly soon.” Regarding the near-term policy outlook, the FOMC reiterated that further gradual rate hikes would be consistent  with the sustained expansion of the economic activity and strong labour market conditions. The CME Group FedWatch’s probability of a 25 bps rate hike stayed unchanged at 82.7% following the statement.

Regarding the downside risks for the economic growth and inflation, the FOMC said that some participants voiced concerns over the potential negative impacts of economic and financial developments abroad as well as a further appreciation of the dollar.

Earlier today, the U.S. Bureau of Economic Analysis announced that the core PCE price index, the Fed’s preferred gauge of inflation, increased 1.8% on a yearly basis in October to miss the analysts’ estimate of 1.9% by a small margin. Other data revealed that personal income rose 0.5% and personal spending increased 0.6% on a monthly basis in October, both readings surpassing the market expectations.

Technical levels to consider

The initial support for the index aligns at 96.70 (20-DMA) ahead of 96.10 (Nov. 19 low) and 95.70 (Nov. 7 low). On the upside, resistances are located at 97 (psychological level/daily high), 97.55 (Nov. 28 high) and 97.70 (Nov. 12 high).