The minutes of the US Federal Reserve (Fed) meeting on January 27-28 will be published on Wednesday at 19:00 GMT. The U.S. central bank decided to leave its key interest rate unchanged at 3.50%-3.75%, but Fed Chairs Stephen Miran and Christopher Waller voted to cut the federal funds rate by 25 basis points.
Jerome Powell and company decided to pause interest rate cuts in January
The Federal Open Market Committee (FOMC) left interest rates unchanged in January after opting for three consecutive rate cuts of 25 basis points (bps). In a policy statement, the Fed noted that the unemployment rate was showing some signs of stabilizing, but reiterated that it would continue to pay attention to the risks to both sides of a dual mandate.
At the post-meeting press conference, Fed Chairman Jerome Powell adopted a neutral tone, stating that both the risk of rising inflation and the risk of dwindling employment had decreased. “I think it’s difficult to look at the data coming in and say that policy is significantly restrictive and may be loosely neutral or somewhat restrictive,” he added.
Ahead of the Fed’s release, BBH analysts said that “the minutes should emphasize that the Fed is in no rush to resume monetary easing.”
“Look for additional color to why the FOMC has allayed concerns about the downside risk to employment. Recall that at this meeting the FOMC voted 10-2 to keep the Fed funds rate target range unchanged at 3.50-3.75%. Fed Governors Stephen Miran and Christopher Waller voted for a 25 basis point cut,” they added.
When will the FOMC minutes be released and what impact might it have on the US dollar?
The FOMC will publish the minutes of its policy meeting to be held on January 27-28 on Wednesday at 7:00 p.m. GMT.
According to the CME FedWatch Tool, markets see virtually no chance of a rate cut in March, and the probability of a 25 basis point cut in April is about 25%. This market position suggests that the US dollar (USD) does not have much room to upside, even if the publication confirms that policymakers would probably prefer to maintain a different policy next month.
Still, the dollar could gain strength against rivals if the document showed that officials could refrain from easing policy if the labor market showed signs of improvement. The U.S. Bureau of Labor Statistics announced last week that nonfarm payroll (NFP) employment increased by 130,000 in January. compared to market expectations for an raise of 70,000, and the unemployment rate dropped to 4.3% from 4.4% in December.
On the other hand, the US dollar may come under bearish pressure if the publication highlights growing confidence among policymakers in a further easing of price pressures. In this scenario, markets could reassess the likelihood of a rate cut in April, given that the latest data showed Consumer Price Index (CPI) inflation fell to 2.4% in January from 2.7% in December.
TD Securities analysts said the January FOMC minutes will likely show a wide spread of views within the committee on the future policy path. “While most viewing metrics are just above neutral, some participants likely saw a high bar for further reductions this year. Given the backlash, several participants likely called for reductions at this meeting,” they added.
Eren Sengezer, Chief Analyst of the European Session at FXStreet, shares a miniature forecast for the USD Index:
“The relative strength index (RSI) indicator on the daily chart rose to the 50 area, reflecting declining seller interest. Additionally, the USD index climbed above the 20-day simple moving average (SMA).”
On the other hand, the 50-day SMA marks the first resistance level at 98.00 ahead of 98.45-98.60, where the 100-day and 200-day SMAs converge. If the USD Index clears this last resistance area, it could face next resistance at 99.00 (round level). Looking south, the first support level can be seen at 96.50 (immobile level) before 95.50 (immobile level).”
