Fed Minutes Preview: Markets to Analyze Comments on Rate Cut Timing

• The Fed will release minutes from its January policy meeting on Wednesday.
• Jerome Powell and company's discussions regarding the shift in monetary policy will be the subject of scrutiny by investors.
• Since the beginning of the year, the Dollar has performed better than its main rivals.

The Federal Reserve (Fed) will publish the minutes of the January monetary policy meeting on Wednesday. Investors will pay close attention to comments on the inflation outlook and the possible timing of a shift in monetary policy.

Federal Reserve expected to keep policy rate unchanged in March

Federal Reserve Chairman Jerome Powell said at the press conference after the January meeting that Does not see likely a rate cut in March. “If we saw an unexpected weakening in the labor market, that would cause us to cut rates sooner,” Powell further explained. After the January labor market report showed nonfarm payrolls increased by 353,000 new jobs, investors saw it as confirmation of a delay in the monetary policy turnaround and refrained from pricing in a rate cut in March. .

With an interest rate cut as early as March becoming increasingly unlikely, Investors began to assess whether May would be the right time for the Federal Reserve to begin to relax its policy. However, the latest US data showed that The economy expanded at a faster rate than expected in the fourth quarter and the disinflation process lost momentum at the beginning of the year. The Bureau of Labor Statistics reported that core inflation in the US, as measured by the change in the core Consumer Price Index (CPI), rose 3.9% in January, matching the increase in December and exceeding the estimates of the analysts of 3.7%. Following these developments, the probability of a rate cut in May decreased to 30%, from 50% seen in February, according to the CME's FedWatch tool.

In anticipation of the FOMC's January meeting minutes, “the FOMC's change in tone between the December and January meetings portrayed a Committee that has welcomed progress made on inflation but would prefer to see further confirmation.” amid strong activity data,” TD Securities analysts said in a note. “The minutes are likely to reveal more color regarding those discussions, as well as the conversations surrounding QT adjustment.”

When will the FOMC minutes be released and how could they affect the Dollar?

The Fed will release the minutes of the January policy meeting on Wednesday at 19:00 GMT. He US Dollar Index (DXY)which measures the valuation of the dollar against a basket of six major currencies, rose more than 2% in January and has risen 0.65% so far in February.

Market positioning suggests the USD has more room to rise if the FOMC minutes fuel expectations of a delay in the monetary policy shift until June. On the other hand, the dollar could come under fresh selling pressure if the release shows that policymakers are willing to consider a rate cut in May. However, policymakers' comments in the minutes are likely out of date because the meeting was held before the release of the latest inflation and employment data. Therefore, the market reaction could be short-lived.

Eren Sengezer, Chief Analyst of the European session at FXStreet, shares a brief technical outlook for the DXY Dollar Index:

“The 100-day simple moving average and the 50% Fibonacci retracement of the October-December downtrend form a pivot zone in 104.00-104.10. If the DXY index fails to stabilize above this zone, the level of 103.70 (200-day SMA) is shaping up to be the next major support before 103.25 (38.2% Fibonacci retracement). Looking upwards, the level of 104.75 (61.8% Fibonacci retracement) and 105.00 (psychological level, static level) could be set as next bullish targets in case 104.00-104.10 remains as support.”