The US FOMC minutes, of the September 19/20 meeting, will be released on Wednesday at 18:00 GMT. At that meeting, the Federal Reserve, decided to keep rates unchanged by unanimous vote at the range 1.00% - 1.25% and announced it will begin to reduced its balance sheet in October.
Key notes
In September the Fed kept rates unchanged as expected. The last rate hike was in June and market odds point toward a December rate hike. The CME Fed Watch Tools shows the odds around 85% for a hike in December and practically no possibilities of a move in November. At that meeting, Janet Yellen gave a press conference so, the minutes could offer little new information. If that is the case, the market impact could be marginal.
Investors are likely to look into the minutes for clues on the balance sheet normalization process and on the Committee’s view on the performance of the economy amid low inflation.
“We expect the minutes from the September meeting to reflect the amount of debate among participants about recent inflation weakness. However, there will likely also be some debate surrounding the FOMC’s evaluation of financial conditions and asset prices”, said analysts at Nomura.
Today, Chicago Fed’s President Evans, a voting member of the FOMC, showed concerns about the low inflation but he sounded optimistic about the level of economic activity. The minutes could should how the FOMC gravitates between those two key variables for monetary policy.
FOMC minutes to reflect the debate among participants about recent inflation - Nomura
Will FOMC Minutes Boost or Break the Dollar?
Implications for DXY
The US dollar is falling on Wednesday with the Dollar Index down for the fourth-day in-a-row as it continues with the decline that started last Friday, after the initial reaction to the NFP. US bond yields continue to be a key driver of the USD.
The DXY dropped after being unable to break last week the key resistance area of 94.00. Today it moved toward the 20 and 55-day moving average that stands around 92.60. If the minutes contain a “dovish” message, signaling increased concerns about low inflation, lower growth or second thoughts about the impact of the previous rate hikes, the US dollar could drop sharply. If that is the case, a slide of the DXY significantly below 92.70 could signal the end of the rally that started around mid-September. The next strong support below could be seen at 92.30.
If the minutes are evaluated as “hawkish”, pointing toward another rate hike in December and more to come in 2018, the greenback could strengthen in the market, boosted by potential higher yields. Regarding the DXY, a recovery above 93.50 would add momentum, opening the doors for a potential test of the 94.00 handle that capped the upside in August and also last week. A consolidation on top would mean that the USD rally goes on.
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.
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