Market participants now expect the Fed to raise interest rates by 25 basis points in the next three FOMC meetings, leading to an appreciation of the US dollar.

The momentum of the greenback rally has regained strength following the release of the FOMC meeting minutes and some US economic data. The US dollar index (DXY) reached its highest range in seven weeks, hovering around the 104.60s during Thursday's (February 23rd) New York session. Meanwhile, EUR/USD and GBP/USD continue to depreciate.

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DXY Daily chart via TradingView

The FOMC meeting minutes from January 31st - February 1st revealed that all members agreed to slow down the pace of Fed rate hikes. At the same time, they emphasized that the frequency and distance of future rate hikes will be determined by progress in efforts to limit inflation.

Overall, the minutes did not provide any new clues that were more hawkish or dovish. However, the excellent recent US economic data boosted the US dollar exchange rate, including a series of reports just announced tonight.

US Gross Domestic Product (GDP) data grew by only 2.7% (quarter-over-quarter) in the fourth quarter of 2022, or lower than the previous period's data (3.2%) and consensus estimates (2.9%). However, the negative bias of this report was offset by the labor market and inflation data that exceeded expectations.

Weekly initial jobless claims showed an increase of only 192k for the week ending February 18th, 2023. This number was lower than the increase of 195k in the previous period and below the consensus estimate of 200k.

The preliminary report of Personal Consumption Expenditure (PCE) showed that inflation pressure remains high, with core PCE price growth reaching 4.3% (quarter-over-quarter), much higher than the consensus estimate of 3.9%. One of the Fed's main inflation references increased by 4.7% in the previous quarter.

Market participants expect the Fed to raise interest rates by 25 basis points at the following three FOMC meetings. As a result, the US dollar is stronger against some other currencies with lower interest rates and economic growth projections.

Despite this, some major currencies are showing fierce resistance. The AUD/USD and NZD/USD are struggling at their respective support levels. The USD/JPY rally is also being held back at the 134.90 range, which has been occupied since yesterday. Market participants await testimony from BoJ Governor candidate Kazuo Ueda before the Japanese Parliament on Friday and Monday.