The US dollar briefly regains traction (Daily analysis 20.05.2021)

The greenback bounced back from multi-month lows set on Wednesday on the back of the FOMC minutes and rising risk aversion fueled by a significant turmoil on the cryptocurrencies market. Nonetheless, the broader downtrend remains intact.

The EUR/USD pair turned lower from the 1.2250 area. The GBP/USD exchange rate slid toward the 1.41 mark, and the US dollar index reclaimed the 90.00 area. Equity markets remain fragile as Bitcoin fights to recover above 40,000 USD after it plummeted over 30 pct. on Wednesday.

The FOMC provides short-term relief for the greenback

The Fed has released FOMC minutes for the 2021 April meeting. Notably, the meeting took place before April’s miss in job numbers and the upside surprise in inflation data. The following lines were perceived as the most important:

• “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”
• “Various participants noted that it would likely be some time until the economy had made substantial further progress toward the committee’s maximum-employment and price-stability goals.”
• “A number of participants remarked that supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year.”
• “A couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction.”

We believe that the USD downside remains limited, although the broader, negative trend stays intact. We expect the EUR/USD pair to reach 1.24 by end of the year due to an extremely accommodative policy stance combined with higher inflation numbers, which together undermine the attractiveness of the dollar.