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

The FOMC minutes, of the January 29/30 meeting, will be released on Wednesday at 19:00 GMT. At that meeting, the FOMC kept the Fed Funds rate target unchanged at 2.25% to 2.50% as expected, in a unanimous decision.

Usually, some journalists have access to the document some minutes earlier in a lookup room inside the Fed. Today that lock up has been canceled due to severe weather. That implicates that the analysis of the minutes will be slower, so headlines could take some extra minutes to start coming out. 

Key notes

At the last meeting, the Fed kept rates unchanged and but removed the hawkish language. It announced a pause in the interest rate hike cycle and that it would be “patient”. Also the FOMC mentioned it was prepared to adjust any of the details for completing balance sheet normalization. The minutes should provide more details about the discussions. The statement was seen as dovish, the minutes could reiterate the tone but also show some disagreements. 

“As written ‘patient’ is not a policy prescription. It favors no conclusion as to the next rate move though it clearly implies a pause. Markets have interpreted it as meaning there will be no rate increases at least until the second half of the year”, wrote Joseph Trevisani, Senior Market Strategist at FXStreet. According to him, markets are looking for clues whether the rate hike cycle is finished or only paused.

Market participants will also look for clues on Fed’s plan regarding the balance sheet.  Analysts at Barclays expect the minutes to signal that the FOMC is prepared to release its plan for the end of the runoff of its balance sheet "soon". They consider it will come at the March meeting. Nordea analysts explained that for technical reasons the quantitative tightening cannot run forever. “The system probably needs at least USD 1,000bn in excess reserves, which could already be reached before the end of 2019 on our projections.”

The FOMC signaled that rates are on hold for the time being. Nomura economists consider that “a key issue is the set of circumstances that would drive the FOMC to raise rates” and “it will also be interesting to see if there was discussion of what would drive the Committee to lower interest rates.” The minutes could offer some hints. 

Implications for DXY

Since the January meeting, the US dollar rose against majors until last week. The DXY peaked at 97.35, the highest since December on Friday and then started to decline. The patient stance was mostly priced in before the meeting. Recent economic data has gained more influence on the US dollar, particularly after the “patient” Fed. 

Volatility could rise with the FOMC minutes. The lasting impact could depend on how dovish the Fed is seen, the plans about the balance sheet and disagreements on the FOMC.  The current bias for the DXY favors the downside after being unable to hold above 97.00. Yesterday lost the 96.60 support, and it appears to be heading to test the 96.00/15 range area. A close below that level should signal more losses ahead from a technical perspective. While on the upside a recovery above 96.70 should strengthen the outlook for the dollar. A daily close significantly on top of 97.05 is needed to clear the way for new multi-year highs. 

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.