• The minutes of the Fed’s September 17-18 policy meeting will be published on Wednesday.
• The focus is on the details of Jerome Powell and company’s decision to cut interest rates by 50 basis points.
• The US Dollar Index may correct its declines on this news, but an upward path is just around the corner.

The minutes of the US Federal Reserve (Fed) meeting on September 17-18 will be published on Wednesday at 18:00 GMT. For the first time in over four years, policymakers loosened monetary policy and surprised market players by cutting interest rates by 50 basis points (bps). The decision sparked speculation that officials were concerned about economic progress and were suggesting more aggressive cuts.

Jerome Powell and company decided to cut interest rates at the September meeting

The Federal Open Market Committee (FOMC) took action after identifying progress toward its inflation target. “In light of progress on inflation and the balance of risks, the Committee has decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent,” the statement said. But officials also noted that “job growth has slowed and the unemployment rate has risen but remains low.”

The announcement wasn’t a complete surprise, given that Powell and company had somehow anticipated the decision to start cutting interest rates. The surprise was a larger-than-expected cut, given that market participants were mostly expecting a 25-basis-point cut, with only Fed Governor Michelle Bowman calling for a quarter-percentage-point cut.

As usual, policymakers reiterated that future decisions would be made through deliberations at meetings based on macroeconomic data.

Meanwhile, Fed Chairman Jerome Powell sharply criticized speculation that the substantial rate cut came on concerns about economic progress. At a news conference following the announcement, Powell said he saw nothing in the economy that indicated a downturn was likely, adding that the growth rate was solid, inflation was falling and the labor market “continues to remain very solid.” ”

“We are trying to achieve a situation where we restore price stability without the painful rise in unemployment that sometimes accompanies disinflation,” Powell added.

As a result, attention turned to employment. Weak data throughout September fueled speculation that the central bank would cut interest rates again by 50 basis points at its meeting in November. The US dollar (USD) came under sustained selling pressure as stock markets cheered for cheaper money.

Everything changed in the first days of October. The September Nonfarm Payrolls (NFP) report released by the Bureau of Labor Statistics (BLS) showed that the economy added a whopping 254,000 jobs during the month, while the unemployment rate unexpectedly dropped to 4.1% from 4.2%. in August. These numbers clearly indicate a mighty labor market and reduce related concerns.

As a result, market players abandoned bets on a 50-basis-point cut in November, and the odds on a 25-basis-point cut are now around 85%, according to CME FedWatch Toll.

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 September 17-18 on Wednesday at 18:00 GMT. The document may explain the decision and suggest future actions, but at this stage it may be aged news. The NFP report actually overshadowed all pre-release speculations about the state of the labor market.

Given falling inflation, economic growth and solid employment data, the United States (US) appears to be in the right place to allow the Fed to cut interest rates at a perhaps slower but steady pace.

The minutes will likely show that policymakers are willing to cut interest rates further in November, although the extent of the cut will depend on upcoming macroeconomic data.

In fact, the US will release the September Consumer Price Index (CPI) on Thursday, and this data will likely have a broader impact on future Fed decisions, and therefore on the USD, rather than on FOMC minutes.

Generally, the more dovish the document is, the greater the pressure on the dollar, and hawkish words should support the dollar.

From a technical perspective, Valeria Bednarik, Principal Analyst at FXStreet, notes: “The US Dollar Index (DXY) appears to be trading above the 102.00 level after flirting with the 100.00 level in September. The overall technical sentiment is optimistic, although another step north is needed to confirm sustained progress over time.”

“From a technical perspective, DXY may correct towards 102.00 before the announcement, with short-term support around 101.90. Nevertheless, the daily chart shows that technical indicators remain positive and the Momentum indicator continues to trend strongly north, reflecting buyer interest. At the same time, DXY has broken above its 20th simple moving average (SMA), which is gaining upward strength near 101.20, a key dynamic support area. Finally, the 100 and 200 SMAs remain well above 103.00, limiting medium-term upside potential.”

Bednarik adds: “DXY needs to break through the 103.00 level to continue rising at solid pace, with the next area of ​​resistance around 103.80. After exceeding the latter, which is an unlikely scenario according to the minutes of the FOMC meeting, the index will enter a clearer upward path.