US Dollar Defends Session Lows Following September FOMC Minutes

USD PRICE OUTLOOK: US DOLLAR UNDER PRESSURE DESPITE OMINOUS REMARKS FOUND IN SEPTEMBER FOMC MINUTES

• USD price action has faced a fresh wave of selling pressure during Wednesday’s trading session
• The DXY Index could try to turn higher in the wake of September FOMC minutes just released
• US Dollar outlook remains constructive following portentous commentary from Fed officials

The US Dollar is attempting to edge higher off session lows after the release of FOMC minutes just crossing the wires from the September Fed meeting. USD price action has been under pressure throughout most of Wednesday’s trading session with FX traders weathering a roller-coaster ride due to market volatility surrounding fiscal stimulus negotiations. US Dollar bulls made a strong push late Tuesday in response to headlines that Trump stopped stimulus talks until after the election, but bears subsequently took back control on speculation that politicians might still try to strike another coronavirus aid deal before November.

DXY - US DOLLAR INDEX PRICE CHART: 1-HOUR TIME FRAME (01 OCT TO 07 OCT 2020)

Chart created by @RichDvorakFX with TradingView

Although, in consideration of the current polling landscape headed into the upcoming election, it seems very unlikely that political differences will be set aside. This stands to further delay the delivery of additional fiscal stimulus, which could help keep a bid beneath the broader US Dollar Index. On that note, the September FOMC minutes highlighted how FOMC members assumed more fiscal support would be provided this year in their latest baseline economic projections.

In fact, the FOMC minutes noted how the pace of the economic recovery would likely be slower without further fiscal policy action. Furthermore, the FOMC minutes outlined how that the pace of the recovery could also be slower than anticipated if “future fiscal support was significantly smaller or arrived significantly later than expected.” Federal Reserve officials also reiterated that uncertainty surrounding the course of the coronavirus pandemic and its corresponding impact on the economy remains extremely elevated, and added that risks to the outlook are still tilted to the downside.

US DOLLAR PRICE CHART WITH VIX INDEX OVERLAID: DAILY TIME FRAME (12 MAY TO 07 OCT 2020)

Chart created by @RichDvorakFX with TradingView

Other bleak commentary found in the latest FOMC minutes includes how recent labor market gains primarily reflect workers temporarily on furlough returning to work, which added how it is less likely for job growth to continue at its current pace “because a greater share of the remaining layoffs might become permanent.” Not to mention, FOMC economic projections also assumed that current restrictions on economic activity due to COVID-19 will continue to ease gradually through next year.

To that end, as second wave risk builds in the background, there is potential that strict social distancing measures will be implemented again with cold and flu season right around the corner. Seeing that the broader US Dollar is viewed as a top safe-haven currency that tends to strengthen during episodes of risk aversion, these aforementioned factors could pose upside risks to USD price action, and likely serve as the drivers steering the DXY Index higher off session lows.

Keep Reading - USD Price Outlook: US Dollar Eyes Fed Speak, Stimulus, & Trump

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight