FOMC meeting minutes will keep the market focused on inflation and boost the dollar
Although the number of new non-farm jobs in the United States in June was far less than expected, investors are still unwilling to give up the view that the overall outlook is upward in the long term. Positioning at the U.S. Commodity Futures Trading Commission showed long U.S. dollar positions were at their highest in more than a decade ahead of the data release, but the dollar selloff that followed was relatively mild. In part, the Fed is likely to ignore a weak non-farm payrolls report given that the overall labor market remains resilient and the unemployment rate is low. This will keep the market's focus on inflation, making next week's CPI a key factor in predicting the path of policy. Before that, today's FOMC meeting minutes will be the most important foreign exchange market event this week. The initial hawkish repricing in the market after the policy meeting was not only due to Warsh's hawkish comments on inflation, but also from the June Summary of Economic Forecasts, when 9 of 18 participants forecast at least one rate hike in 2026. The minutes should shed further light on this change and reinforce the logic behind the initial hawkish pricing, supporting the downside for EUR/USD. Finally, as the previous MLIV commentary article pointed out, as the European market opens, the escalation of the situation in the Middle East will have limited impact on the broader market. However, this provides another reason to be bullish on the dollar.