The US FOMC minutes, of the December 18/19 meeting, will be released today at 19:00 GMT. At that meeting, the FOMC, voted to raise the Federal Funds rate to the 2.25% - 2.50% range. It was the fourth rate hike of the year.
Key notes
The move on rates at the December meeting was expected. It took place despite criticism from President Trump. The central bank lowered its forecasts for hikes in 2019 amid volatility in financial markets and slowing global growth.
A lot has happened since that meeting, including today. Last week, Chairman Powell mentioned the Fed 'will be patient' with monetary policy and also that the central bank is “listening very carefully” to the market. His words were seen as “dovish,” and Wall Street rose and the US dollar fell. Earlier today, two Fed officials suggested that there is little need to raise interest rate in the near-term and one of them, mentioned that the move could go in either direction. Those comments had an impact on markets.
Today’s minutes could be “old news,” but there is always room for surprise and could bring more clarity. They could reinforce some recent change in expectations about a more gradual Fed. In December the talk was about how many rates could take place during 2019, one month later, speculations about how long can the Fed pause until the next rate hike, is gaining momentum.
Implications for DXY
The US dollar, measured by the DXY (Dollar Index) lost ground in the market following the FOMC December meeting. Back then was hovering slightly above 97.00 and it never was able to reclaim that level.
During the last weeks, it moved with a bearish bias. After consolidating below 97.00, dropped further under 96.20 and on Monday below 96.00. Today extended the decline and bottomed at 95.19, the lowest since October 17.
The outlook favors the downside, and if the minutes point to a more patient Fed or are seen as dovish, a test of 95.00 and the 94.95 support area seems likely. Below the next support might lie at 94.80. If the minutes show another direction and points, for example, to keep rising rates despite the current environment or most members mention the current negative factors for growth as temporal (unlikely), the greenback could gain momentum for a recovery. The move higher in DXY could face resistance at 95.65 and above at 96.05.
Even if the US dollar climbs further above 96.00, the outlook will continue to point to the downside. Many days of gains appear to be needed to remove the current signal that a temporal peak is in place in the DXY.
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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