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

The FOMC minutes, of the November 7/8 meeting, will be released on Wednesday at 19:00 GMT. At that meeting, the FOMC, kept the Fed Funds rate target unchanged at 2.00% to 2.25% as expected, in a unanimous decision.

It was the last meeting without a press conference. Next year, Fed’s Chairman will have news conferences following each meeting, starting in January.

Keynotes

At the last meeting, the Fed kept rates unchanged as expected and appeared to be on track to raise rates in December. Back then repeated it expects "further gradual increases."  The statement had no significant impact and if the minutes offer no new information, it could also be the case today.

What changed dramatically was the speech from Jerome Powell yesterday. He said: “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth. My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent”. 

The current path of monetary policy is for gradual rate hikes, but the expectations for 2019 changed after Powell’s speech. “If the governors are beginning to see the effects of rate increase in the economy that concern should show up in the minutes. The Fed reveals policy changes by degrees. Mr. Powell's comment on the neutral rate was carefully considered. Markets will be looking for evidence that the committee members see the same economic picture. The discussion of the neutral rate will be telling.  Do the governors have parameters for the Fed Funds being “just below" Mr. Powell's neutral?”, says Joseph Trevisani, Senior Analyst at FXStreet. 

According to analysts at Danske Bank, the market is priced for a December hike and one hike next year. “It could be discussed how the comment should be interpreted, but for risky assets it is important because it underlines that the Fed has increasingly become data dependent and is no longer on auto-pilot. If the weaker global economy or the trade dispute with China starts to impact the US economy, the Fed is ready to change course.” They point out that the minutes will be scrutinised in light of the Powell recent comments. 

Implications for DXY

Yesterday, Powell’s dovish speech triggered a sharp decline of the US dollar across the board. The DXY pulled back from weekly highs and suffered the most significant daily loss in weeks but remains near monthly highs. 

Days after the November meeting, the DXY peaked at 97.70, the highest level since June 2017. Then pulled back finding support above the 96.00 area. It is biased upward, but it remains limited by the 97.50 zone. A break higher could open the doors to more gains over the medium term. The bullish tone is likely to stay intact as long as the index holds above an uptrend line from October lows that stands at 96.40. Before that level, a strong support is located at 96.60/70. 

If the minutes have the same line of Powell recent speech, the greenback could be back under pressure, pushing the DXY to test 96.60 and then 96.40. While if the minutes surprise with a different tone, signaling to more than two rate hikes in 2019 or warns about inflation or an overheating economy, the US dollar could gain momentum. After what Powell said yesterday, risks for the US dollar appear to be on the downside. 

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.