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US Dollar Down, Vol Down, Stocks Up After May FOMC Minutes

US Dollar Down, Vol Down, Stocks Up After May FOMC Minutes

Christopher Vecchio, CFA,
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US Dollar Outlook:

  • No surprises from the May FOMC minutes – including no mentions of ‘stagflation’ or ‘recession’ – come as a welcomed development.
  • The FOMC sees a strong US labor market, while inflation pressures will ease to +4.3% y/y by the end of 2022 and +2.5% y/y by the end of 2023.
  • According to the IG Client Sentiment Index, the major USD-pairs collectively have a mixed bias.
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The May FOMC minutes have been released, though the market reaction has been muted during an otherwise quieter trading session. The discussions held at the May 3-4 FOMC meeting showcased concerns over inflation pressures, belief that the US labor market remains in a position of strength, and that the decline in 1Q’22 US GDP masks the resiliency of the US economy – points that were made by Fed Chair Jerome Powell in his post-meeting press conference on May 4.

In a sense, the May FOMC minutes offered no surprises – no news – a sigh of relief for market participants who may have been fearing a more hawkish discussion prior to the rate decision. For now, the FOMC appears to be holding the course: 50-bps rate hikes at the next two meetings (June and July).

The May FOMC minutes noted specifically that “many participants judged that expediting the removal of policy accommodation would leave the committee well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments.” Somewhat noteworthy, the May FOMC minutes contained no mentions of either ‘stagflation’ or ‘recession’ – a sign of confidence among Fed policymakers that a soft landing (bringing down inflation without driving higher unemployment or a significant growth retrenchment) is possible.

See the DailyFX Economic Calendar for Wednesday, May 25, 2022.


Following the release of the May FOMC minutes, risk appetite continued to firm up. US equity futures climbed (ES and NQ), volatility (as measured by the VIX and VXN) eased lower, and the US Dollar (via the DXY Index) slipped back. Overall, the DXY Index is still up around +0.40% on the session, helping break the streak of two consecutive daily losses.

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--- Written by Christopher Vecchio, CFA, Senior Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.