This Wednesday, all eyes will be on the release of the US Federal Reserve’s (Fed) July 30-31 monetary policy meeting minutes, scheduled for 18:00 GMT. Investors are keen to uncover any hints that could support the possibility of a significant 50 basis points (bps) rate cut in September.
Key Points to Watch:
- Fed’s Policy Discussions: The minutes will provide insight into the discussions held by Fed Chair Jerome Powell and his colleagues regarding the strategy for policy easing and the economic outlook.
- Market Expectations: Currently, markets are betting on a roughly 27% chance of a 50 bps rate cut next month.
Powell’s July Meeting Insights
At the July meeting, the Fed held steady on monetary policy for the eighth consecutive time. The policy statement noted that the Fed remains attentive to risks on both sides of its dual mandate, marking a slight shift from the June language, where the focus was ‘highly attentive’ to inflation.
In the post-meeting press conference, Powell suggested that a rate cut could be on the table in September, admitting there had been a “real discussion” on the matter during the July meeting.
Economic Data Adds Pressure
Shortly after the Fed’s decision, the Bureau of Labor Statistics (BLS) released data indicating a further cooling in the labor market. July’s Nonfarm Payrolls (NFP) showed a rise of just 114,000, with the unemployment rate ticking up to 4.3%. These soft job figures, combined with Powell’s dovish comments, led markets to fully price in a 25 bps rate cut for September. At one point, the probability of a larger 50 bps cut had surged to nearly 50%, though stronger retail sales and jobless claims data later tempered these expectations.
Potential Impact on the US Dollar
The publication of the Fed minutes could significantly impact the US Dollar (USD). Should the minutes reveal that Fed officials who favored a rate cut in July also support further easing in September, the USD could weaken against major currencies. Conversely, if the minutes suggest a more cautious approach, with officials preferring to hold off on another cut, the USD may gain strength.
Technical Outlook for USD
Eren Sengezer, European Session Lead Analyst, offers a brief technical view on the US Dollar Index (DXY):
- Bearish Trend: The DXY remains under pressure, with the Relative Strength Index (RSI) on the daily chart approaching the oversold territory near 30.
- Support Levels: Key support is found at 101.70, with further downside potential toward 100.60.
- Resistance Levels: On the upside, resistance lies at 103.50 (20-day SMA) and 104.10 (200-day SMA). A daily close above 104.10 could trigger a bullish move toward 104.75.
As traders await the Fed minutes, the potential for volatility in the USD remains high, making it a critical event for market participants.