Fed minutes set to shed light on rate cut talks

• The minutes of the Fed’s July 30-31 policy meeting will be released on Wednesday.
• The details of Jerome Powell and Co’s policy easing talks will be scrutinized.
• Markets are betting on a roughly 27% chance of a 50bps Fed rate cut in September.

The minutes of the July 30-31 US Federal Reserve (Fed) monetary policy meeting will be published at 18:00 GMT on Wednesday. Investors will be looking for details in Fed policymakers’ discussions about its policy easing strategy and the economic outlook.

Jerome Powell admits officials discussed a rate cut at their July meeting

The Fed kept its monetary policy settings unchanged for the eighth straight meeting in July, as expected. In its policy statement, the US central bank said it was alert to risks on both sides of its dual mandate, a shift from a June statement in which it said it was “very alert” to inflation risks.

Although the Fed has reiterated that it does not expect it to be appropriate to cut rates until it has greater confidence that inflation is moving sustainably toward 2%, Fed Chairman Jerome Powell’s remarks at the post-meeting press conference confirmed almost a rate cut. September.

“We’re getting close to getting to the point of cutting rates,” Powell said, adding that a rate cut could be on the table in September. Furthermore, he noted that there was a “real discussion” about the case for rate cuts at the July meeting.

Two days after the Fed announced monetary policy decisions, the monthly report released by the Bureau of Labor Statistics (BLS) showed further cooling in the labor market in July. US non-farm payrolls (NFP) rose by 114,000 in July, and June’s increase of 206,000 was revised up to 179,000. In addition, the unemployment rate rose to 4.3% from 4.1%.

Powell’s dovish comments and weak jobs report allowed markets to fully price in a 25 bps rate cut in September. According to the CME FedWatch tool, the probability of a 50 bps rate cut reached nearly 50% in early August. With upbeat July retail sales and weekly jobless claims easing fears of a US economic recession, the odds of a big rate cut retreated to 25%.

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

The Fed will publish the minutes of its July 30-31 policy meeting at 18:00 GMT on Wednesday. Investors will scrutinize talk of interest rate cuts and the economic outlook.

If the minutes show that policymakers who backed a rate cut in July also expressed their desire for another rate cut in September, investors could re-price a big rate cut in September. In this scenario, the immediate market reaction could see the US dollar (USD) weaken against its main rivals. Additionally, the USD is likely to remain on the back foot if the report shows that officials are now more concerned about the negative impact of tight policy on the economic and labor market outlook rather than inflation.

On the other hand, the USD could gain strength if the publication reveals that officials who preferred to cut the monetary policy rate in July wanted to skip a rate cut in September to have more time to assess incoming data.

Eren Sengezer, lead analyst for the European session, shares a brief technical outlook for the US Dollar Index (DXY):

“The US dollar index remains bearish in the near term, with the relative strength index (RSI) indicator on the daily chart pushing lower towards 30. On the downside, 101.70 (static level since December 2023) lines up as intermediate support ahead of 100 ,60 (December). 28 low).”

“On the other hand, the 20-day SMA lines up as dynamic resistance at 103.50 ahead of 104.10 (200-day SMA). A daily close above the latter could attract technical buyers and open the door for another level higher towards 104.75 (100-day SMA).