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

The US FOMC minutes, of the July 25/26 meeting, will be released on Wednesday at 18:00 GMT. At that meeting, the Federal Reserve decided to keep rates unchanged by unanimous vote at the range 1.00% - 1.25%.  

Key notes

In July the Fed remained on hold as expected, following the June rate hike. It was a meeting without updated projections and a press conference. Back then, the focus was exclusively on the statement, that contained no major changes. The FOMC changed the expected timing of the beginning of the balance sheet normalization from “this year” to “relatively soon”. 

Most analysts expect some kind of announcement at the next meeting in September regarding the balance sheet, particularly taking into account that despite the trend lower in inflation, the labor market remains solid and the economy growths. The CME FedWatch Tool shows that markets price in no rate hike in September, very low odds of a November hike and almost a 50% chance of a move higher in December. 

On Monday, Fed New York President Dudley said it isn’t unreasonable to expect an announcement on how the Federal Reserve plans to reduce its balance sheet in September and also mentioned that he would be in favor of another rate hike in 2017 if the economy evolves as expected. 

With respect to today’s minutes, analysts from Danske Bank said: “Focus will remain on the discussions of the timing of quantitative tightening and any comments on how concerned the Fed is about the low inflation which it now describes as 'below 2%”. While according to Barbara Rockefeller, from Rockefeller Treasury Services, the outcome of the minutes is likely to be disappointing: “The key data is the 5-month run of softer inflation”. 

US: FOMC minutes in focus - TDS

The Fed minutes and next week’s Jackson Hole outcomes are likely to be disappointing

FOMC Minutes Eyed as Fed Prepares First Balance Sheet Reduction

Implications for DXY

The US dollar is rising versus European currencies but is lower against commodity and emerging market currencies. The Dollar Index await the minutes testing yesterday’s highs and rising for the third day in a row as it continues to recover from 1-year lows. It is on track for the biggest weekly gain since March. 

On Tuesday, posted the first daily close above the 20-day moving average since mid-June and at the moment is testing the 94.00 handle. If the minutes are taken as “hawkish” the greenback could gain momentum and climb above 94.00. The next resistance level might be located at 94.25 (Jul 28 low) followed by 94.70. 

On the flip side, it the minutes points toward a dovish message (no more rate hikes and/or very gradual balance sheet normalization) the greenback could lose strength. The immediate support is seen at 93.75 (last week high) followed by 93.30/40 (20-day moving average). A slide back below 93.00 could signal the end of the current correction. 

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.