When are the FOMC minutes and how could they affect DXY?

The US FOMC minutes, of the May 2/3 meeting, will be released on Wednesday at 18:00 GMT. At that meeting, the Federal Reserve, decided by an unanimous vote, to keep rates unchanged at the 0.75% - 1.00% range. 

Key notes

At the May meeting, the Fed decided, as expected to leave interest rates unchanged. That meeting was not followed by a press conference and it did not contain upgraded economic projections from FOMC members. The central bank did not signal a June hike, but left the doors open. The CME FedWatch Tool, using prices in the future market, shows a probability of 78.5% of a rate hike at the June 13/14 meeting. 

The minutes will show the deliberations of the May meeting. “The focus of those reading the Minutes will be on the Fed’s balance sheet plans, but beyond that, what matter sis where rates are headed over the medium term, rather than where they are going in the next few months”, said Kit Juckes, Research Analyst at Societe General.

According to analysts from Brown Brothers Harriman, it is difficult to imagine the minutes will be much more revealing that the meeting itself, that was close to be a non-event. “Given that the minutes pick up sentiment from non-voters as much as voters, the risk seems asymmetrical for more hawkish rather than dovish minutes. It still seems early to expect many revelations about the balance sheet strategy”, added analysts from BBH. 

FOMC Minutes to push yields slowly higher again - SocGen

FOMC Minutes in focus today – RBC CM

Fed Minutes to be carefully examined for any information to unwind the build-up of assets – Lloyds Bank

Implications for DXY

Even in the case that the minutes turn to be hawkish, they could have a limited impact, because market expectations of a June rate hike are already high. But if tone in favor of the tightening is excessive, then the USD could strengthen in the market. These could come from signals that there are plans for starting the normalization of the balance sheet or that the FOMC is evaluating an acceleration in the rate hike process. Both scenarios, at the moment, seem unlikely. On the opposite direction, a dovish minutes, could weaken the US dollar. It could be damaging for the greenback if the tone of the document, pushes significantly to the downside the odds of a June rate.  

The US dollar index is moving with a bearish tone since the beginning of the year. Last week it broke a key short-term support and extended the slide. On Monday it bottomed at 96.65, the lowest since the US Presidential elections. That area is now a relevant support and a break lower could lead to a slide toward the next strong support area seen around 96.00. 

In the very short-term, the DXY is making a correction. If the US gains momentum it could rise further toward the next resistance levels, located at 97.50 and 98.10, before the strong 98.50. A daily close on top of 98.50 would remove bearish pressure significantly. 

About the FOMC minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.