Forex Today: Fed’s hawkishness boosts the US Dollar

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What you need to take care of on Thursday, February 23:

The US Dollar maintained its hawkish bias, accelerating its advance by the end of the American session and following the Federal Open Market Committee (FOMC) Meeting Minutes. The document showed that a few participants favored a 50 basis point (bps) rate hike, while some believed there was an elevated risk of a recession in 2023. More relevant, all participants agreed more rate hikes are needed to achieve the inflation target while also favor further Fed balance sheet reductions. Finally, participants stated that the continued tight job market would continue to put upward pressure on inflation.

Mid-US session, St. Louis Federal Reserve President James Bullard said more aggressive interest rate hikes now would give the FOMC a better chance to tame inflation, adding he believes there are good chances they could beat inflation this year without creating a recession.

Stock markets, in the meantime, suffered from geopolitical tensions throughout the day, dipping further in the red with the FOMC statement. China’s top diplomat, Wang Yi, said on Wednesday that his nation is ready to deepen strategic cooperation with Moscow adding their relationship will not succumb to pressure from other countries. Russian President Vladimir Putin, on the other hand, highlighted the relevance of cooperation with China, adding he is looking forward to Chinese President Xi Jinping visiting Moscow.

The EUR/USD pair flirts with the 1.0600 level by the end of the American session. Earlier in the day, In Europe, Deutsche Bank lifted its forecast on the European Central Bank (ECB) terminal rate to 3.75% from 3.25% previously. ECB Governing Council member Francois Villeroy de Galhau, however, noted that the central bank is not obliged to raise borrowing costs at every meeting, as the deposit rate is already at restrictive levels, suggesting financial markets may have overshot when betting on the ECB rates’ peak.

GBP/USD trades at around 1.2050. AUD/USD defies the 0.6800 mark, while USD/CAD hovers around 1.3550. Finally, USD/JPY remains stable, just below the 135.00 level.

Spot gold collapsed ahead of FOMC Meeting Minutes and trades around $1,826 a troy ounce. Crude oil prices also edged sharply lower, with WTI now changing hands at $73.90 a barrel.

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