The publication of the January FOMC minutes did not affect much the FX market in the absence of any significant news. Market participants were still trying to determine whether “further gradual increase” has to be interpreted in the sense of faster pace of rate hike or whether it will just mean that the Fed will continue on this path and at this pace for years to come. We believe that the latter is more likely, especially in the short-term, as there is no reason for the Fed to accelerate tightening. Inflation is under control. Moreover, in our opinion, it is risky to draw to many conclusions from those minutes as Jerome Powell took over as Fed Chair in the meantime. Indeed, the January FOMC meeting was done under Janet Yellen, and even though Powell will not fundamentally change the Fed thinking, one could expect some small adjustments.
Initially, the greenback had an acute reaction as it fell slightly against most of its peers. However, the mini sell-off was short-lived. This morning, in the absence of a clear driver the buck is performing unevenly. USD/JPY is down 0.40% to 107.30, EUR/USD stabilised at around 1.2280, while USD/CHF maintains a bullish momentum. Given the lack of global driver, investors will remain focus on the Fed and anything that could influence its tightening path. More specifically, the January’s PCE figures that will be released next week and the February’s CPI report, which will be publish on March 13th, will be scrutinized by investors as it could influence the outcome of the FOMC March meeting. We remain positive USD; however it seems that the market remains cautious regarding the buck and do not expect further upside.
By Arnaud Masset