FOMC Minutes are Unlikely to Bring Dovish Surprise and Here is Why

After the holidays, the US markets are gearing up for today's opening, and volatility is expected to rebound. Today's focal point is the release of the FOMC meeting minutes for June. Given the recent revision of the Dot Plot to include two rate hikes in 2023 and Powell's suggestion last week to closely consider officials' forecasts, it is unlikely that market expectations will shift towards a more accommodative monetary policy. Since the beginning of July, the US dollar has maintained a steady consolidation around the 103 level on the Dollar Index (DXY), as investors eagerly await validation of the Federal Reserve's hawkish stance through upcoming data releases, including the ISM Non-Manufacturing Index, the ADP Employment Report, and the official Unemployment Report on Friday.The FOMC meeting minutes today will provide insight into the delicate balance struck between pausing at the previous meeting and the rather bold signals indicating the potential for two additional rate hikes during the current phase of the business cycle. Of particular significance will be the officials' projections regarding core inflation and their assessment of the space available for further tightening. Moreover, market sentiment may be influenced by details surrounding the potential easing of policy in 2024. Nevertheless, some uncertainty remains, as Powell hinted in the post-FOMC press conference that it might be premature to price in rate cuts in 2024, despite indications from the Dot Plot suggesting otherwise.Overall, both the Dot Plot and Powell's communication subsequent to the Fed meeting suggest that a shift towards a more accommodative policy stance should not be anticipated this year. The only factor capable of prompting such a reassessment would be underwhelming US economic data. Today's event calendar lacks notable excitement, with the market potentially focusing on US Industrial Orders for May and the second estimate of Durable Goods Orders. However, tomorrow's releases, including the ISM report and ADP data, are expected to have more significant implications for short-term Fed policy expectations.In the EUR/USD currency pair, sellers have dominated trading activity in recent sessions, disregarding the support experienced by other pro-cyclical currencies. Nevertheless, this prevailing sentiment appears to be a mere reflection of market noise, leaving the pair struggling to establish a clear direction until key US data is unveiled later in the week. Unless unforeseen data surprises arise, the uncertainty surrounding the anticipated pair of rate hikes by the Fed and the ECB's hawkish messaging is likely to confine EUR/USD within the range of 1.08 to 1.10 for an extended period. Presently, the pair is showing signs of upward movement as it continues to consolidate within a flag pattern near a significant resistance zone:Today's event calendar in the eurozone includes May's PPI figures, national industrial production data, and the final PMI readings for June. Typically, these releases have minimal impact on the market. However, market participants may react to consumer expectation data, which incorporates inflation expectations. Additionally, attention will be directed towards ECB speakers, including Joachim Nagel, who has recently adhered to a hawkish rhetoric, as well as more dovish members like Ignazio Visco, Francois Villeroy de Galhau, and Pablo Hernandez de Cos. Market projections currently factor in a potential 38-basis-point tightening by September, and an apprehensive stance on core inflation from the doves could facilitate complete pricing of this anticipated move.