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

The US FOMC minutes, of the September 25/26 meeting, will be released today at 18:00 GMT. At that meeting, the FOMC, voted to raise the Federal Funds rate to the 2.00% - 2.25% range.

Key notes

The move on rates at the September meeting was expected. The projections from the FOMC staff showed that another rate hike in 2018 was likely. It was the third rate hike of the year. The statement contained a few changes and the most important was the removal of the word “accommodative”. Later during the press conference, Chair Powell offset the importance of the changes in the statement. 

“Powell was a primary catalyst for the spike in yields a couple of weeks ago when he declared that we’re not yet near the neutral rate and could go beyond, which flies in the face of the belief of many that we’re in the latter phase of the tightening cycle. It will be interesting to see whether others share the views of Powell, although we may be better informed by the comments of the many policy makers that are speaking this week, including Lael Brainard today”, wrote Craig Erlam, analyst at MarketPulse. 

Nomura analysts will pay particular attention in the minutes to the discussion around the appropriate path of policy in 2019, “given the dispersion in participants’ forecasts, along with discussions on the neutral rate and whether a restrictive monetary stance will be appropriate to slow the economy”.

Implications for DXY

The US Dollar Index started a rally the day after the last FOMC meeting. It rose from 94.25 and peaked last week at 96.15. The index was rejected from above 96.00 and corrected lower. Yesterday bottomed at 94.80 before bouncing back above 95.00. The rejection from below 95.00 and today’s move higher could signal that a short-term bottom is in place. 

The minutes could contribute to favor the scenario of a bottom and could even signal the resumption of the dollar’s rally. A language that points out the need to speed up tightening or considerations for rising rates significantly above the neutral rate, could boost the greenback. A consolidation on top of 95.40 would add support to more gains for the DXY. The next resistance is seen at 95.80. On a wider perspective, a close on top of 96.00, would point to a test of October or even August’s highs. 

On the flip side, a dovish tone from the minutes, that could include giving too much importance to economic risks and to the potential impacts of higher rates, could weaken the demand for the US dollar and pushed US yields to the downside. The key immediate support continues to be 95.00.  A consolidation below, will be negative for the DXY from a technical perspective and could target the 94.45/50 area. 

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.