Geopolitical risks in the Middle East offset Fed minutes signaling cautious rate hikes, lifting the Euro and crude prices while weighing on equities.
The Euro steadied against the US Dollar at 1.1420 on Wednesday, recovering from daily lows of 1.1391, as escalating Middle East tensions countered market reactions to Federal Reserve minutes. US forces conducted additional strikes against Iran near the Strait of Hormuz, souring risk sentiment and lifting crude prices by over 3.5% to $74.77 for WTI.
Fed minutes revealed unanimous support for holding rates, with officials noting stable labor markets but mixed views on policy restrictiveness. Most participants favored removing dovish language from statements, while money markets priced a 52% chance of a 25-basis-point hike in September, with an 18% probability of a 50-bps increase.
US equity markets closed lower on the geopolitical headlines, while the USD faced downward pressure as investors weighed the Fed’s cautious stance against heightened regional risks.