The US FOMC minutes, of the December 12/13 meeting, will be released on Wednesday at 19:00 GMT. At that meeting, the FOMC, rose the Federal Funds rate by 25bp to 1.25% and 1.50%. Two members (Charles L. Evans and Neel Kashkari) voted against the decision.
The move in December was widely expected and had little impact on markets. The Federal Reserve also presented updated projection. They raised their forecast for economic growth and continue to expected three hikes in 2018. The minutes could offer more clues about the future path of monetary policy and what the members were thinking.
“We expect the minutes to shed light on the inconsistencies in the committee's economic projections. We believe that, in the absence of fiscal stimulus, some members may have reduced their inflation path in 2018 given recent softness on inflation,” wrote analysts at Barclays.
The December FOMC statement offered no new information regarding why they rose rates and also about the future. The minutes could offer more details on the decision and also about expectations about the tax reform and the outlook on inflation and growth.
According to analysts from Rabobank: “investors will be looking for any clues to assess the outlook for monetary policy. Our Fed watcher Philip Marey continues to argue that core inflation will continue to undershoot the Fed’s 2% target. Therefore, he expects only two hikes this year – one in June and another in December - instead of the three hikes that are implied by the dot plot”.
Last month meeting was followed by a press conference. It was the last post-meeting conference from Yellen. She will be replaced by Jerome Powell in February. According to the CME Group FedWatch Tool, based on current prices, the probabilities of a rate hike at the next meeting are below 1% and they jump to 56% for a move in March. The last numbers could change with the minutes.
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Implications for DXY
The US Dollar has been under pressure since mid-December, after the Fed’s meeting. The Dollar Index (spot) since then it lost almost 2%. Today it is rising for the first time after falling during five trading days in-a-row. Yesterday bottomed at 91.76, the lowest since September 22. Today it rose back above 92.00 amid a general recovery of the greenback. It peaked after the release of upbeat US data at 92.25 and ahead of the minutes it was hovering around 92.05.
If the minutes are tilted as dovish, it would be negative for the DXY and a test of the key support at 91.80 seems likely. A close below that level would expose 91.45. If the pressure persists, the next level to watch is seen at 91.00/05 (2017 lows).
The greenback could gain momentum to extend the recovery if the FOMC minutes show some hawkish comments. In that case, the Dollar Index could extend the rebound from 91.80. To the upside, the strong immediate resistance is seen at 92.50 followed by 92.70/75. Overall the downside bias is likely to remain in place as long as the index holds below 93.80/94.00 (downtrend line).
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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