USDJPY drops 0.55% ahead of FOMC Minutes 📉

📊 FOMC Minutes announcement: markets expect deeper insight into November rate cut

The minutes of the November FOMC meeting, scheduled for release today at 7:00 p.m. GMT, will provide key context for the recent 25-bp interest rate cut to 4.75% and a significant shift in Fed communications.

Do Fed bankers' comments warrant another rate cut in December❓

The unanimous decision to cut by 25 bps, including the previously opposed Bowman, suggests a stronger consensus on the direction of policy. Markets will be looking for details on how this consensus was reached, especially in the context of the removal of the phrase “greater certainty” on inflation. On the inflation assessment, despite the removal of language about “certainty” from the position, Powell maintained a positive outlook on inflation during the press conference. The minutes should reveal the committee's broader view of inflation risks and whether there are real concerns about progress toward the 2% target. Another important element is the evolution of the labor market. Powell's statement that no further cooling is needed to achieve 2% inflation was significant. The minutes may provide deeper insight into how committee members view the labor market balance and its implications for policy.

It is worth remembering that since the November decision (07.11), money market anticipation has turned more toward halting the momentum of rate cuts. This is due in large part to the Fed's preferred measure of PCE, which has shown signs of heightened inflationary pressures for nearly 3 months. Source: Bloomberg Financial LP

Will the dollar continue to strengthen?

In the context of forward guidance, given Powell's preference to avoid making broad announcements about the future, the minutes may reveal a debate about communication strategy. 

The market will be looking for clues about the possibility of a December meeting, currently pricing in a 15bp of 25bp cut.

Source: Bloomberg Financial LP

In the foreign exchange market, the dollar index (USDIDX) strengthened after the Fed's announcements, currently consolidating in the 106.50-107.50 range. If the minutes reveal broader inflation concerns than Powell's press conference suggested, we can expect further strengthening of the dollar. Any signs of division over the pace of future cuts could increase market volatility, and discussion of bond market dynamics could affect Treasuries yields, which have been particularly sensitive recently.

The U.S. yield curve reacted with a decline to Bessent's nomination. Source: Bloomberg Financial LP

Scott Bessent's nomination as Treasury Secretary has triggered a positive reaction from markets, as seen in the strengthening of the dollar and the decline in bond yields. His “3-3-3” strategy - involving deficit reduction to 3% of GDP, economic growth of 3% and increasing oil production by 3 million barrels a day - is seen as a balance to the populist elements of Trump's agenda. Although some of the goals may be difficult to achieve, especially in the context of restrictive immigration policies and current energy market conditions, Bessent's hawkish approach to government spending and deficit management (currently 6-7% of GDP) could significantly influence future US fiscal policy, especially in the context of the decision to extend tax cuts expiring in 2025.

 USDJPY (Interval D1)

The USDJPY pair halted gains within the 78.6% Fibo retracement of the downward channel that was initiated in July this year. All the time, however, the foundations of the technical uptrend are maintained in the medium term. The key support points in this regard remain the intersection zones of the 50-, 100- and 200-day exponential moving averages. The psychological point of resistance still remains the area of local peaks from mid-November in the area of 156,600. Source: xStation