What are the consequences of a split within the FOMC? It is unlikely that the presence of diametrically opposed views in the minutes of the July FOMC meeting will be a revelation to the financial markets. After that meeting, Federal Reserve Governor Michelle Bowman spoke about the need for further increases in the federal funds rate, while Philadelphia Fed President Patrick Harker intended to halt the process of monetary policy tightening. Moreover, much has changed since then, including the balance of power in the EUR/USD pair.

A strong U.S. job market, a declining inflation trend, and surprisingly robust retail sales could have brought the FOMC to a consensus. A soft landing is in sight! The Personal Consumption Expenditures (PCE) index will return to its 2% target. Perhaps not today or tomorrow, but the day after. It just needs time. Essentially, the Federal Reserve has done its job and has stepped aside to assess the results. And the results are pleasing. Consumer prices have fallen from over 9% to 3%.

Dynamics of the Fed rate and inflation in the USA

It is doubtful that the FOMC's "hawks" will insist on raising borrowing costs to the 5.75% projected in June. Rates are already at a restrictive level, and the delayed effects of monetary tightening will continue to cool the U.S. economy. Meanwhile, inflation growth rates will decline. So, everything is clear with the Fed. The only uncertainty is when the "dovish" turn will occur. If it happens later than the derivatives market expects in March 2024, EUR/USD will continue its downward trend.

All signs point to this. The stock market's situation gives the green light to the U.S. dollar. Stocks are falling, indicating a worsening global appetite for risk and prompting investors to buy safe-haven assets like hotcakes. Bonds are also declining, leading to a rise in their yields, particularly in the U.S., resulting in a higher USD index.

In this context, the EUR/USD's reaction to stronger-than-expected British inflation data for July, as anticipated by Bloomberg experts, is telling. Initially, the pound strengthened on expectations of an increase in the repo rate to 6%, giving a boost to the euro.

Inflation dynamics in the UK

However, as bond yields in the UK rose, markets realized that the end of the monetary tightening cycles is still far off, including in the U.S. If so, the global rally in debt yields has gained momentum, bringing EUR/USD bulls back down to earth.

In my view, the minutes of the July FOMC meeting are unlikely to help EUR/USD bulls. Yes, an upward rebound is possible, but there are so many sellers of euros against the U.S. dollar in the market that the downward trend will quickly resume.

Technically, an inside bar has formed on the daily chart of EUR/USD. A successful test of its lower boundary near 1.09 will allow us to increase shorts formed from levels 1.1065 and 1.0965. Targets for the downward movement are 1.086 and 1.080.