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The Fed minutes opened the option for a June rate hike and lifted the greenback across the board, with notable moves in EUR/USD, AUD/USD  and USD/CAD. What’s next?  Is a June hike a certainty?  Here are 3 opinions:

Here is their view, courtesy of eFXnews:

USD Post-FOMC Minutes: Options Open – BofA Merrill

The April minutes of the Federal Open Market Committee (FOMC) revealed a greater willingness to consider a June rate hike than market pricing or recent consensus among economists would suggest.  Indeed, “some” voting members thought that market pricing of a June rate hike “might be unduly low.” While “most” participants thought that a case for hiking in June could be made if their forecasts for improving 2Q growth, continued labor market strength, and progress on inflation were met, “several” worried that “incoming information might not provide sufficiently clear signals” in time.

The FOMC otherwise was divided on several issues, and the voters generally agreed that it would be “appropriate to leave their policy options open” and “maintain flexibility.” As we have noted before, rate hikes this summer remain a possibility, conditional on the outlook.  However, our base case remains a patient Fed that next hikes in September.

FX: Fed expectations to continue supporting the USD, for now”¦

The Fed minutes echoed the tone of recent Fed speakers who have pushed back against dovish market pricing, arguing June or July hikes remain likely given recent positive economic and global market developments. Alongside a better tone to US data in recent days and more neutral dollar positioning, a continued increase in the number of market-implied hikes has room to further support the USD. However, given the Fed’s still data-dependent stance and how far market-implied expectations have come, the USD impact could diminish unless US data momentum picks up meaningfully, particularly if increased Fed expectations raise market concerns about China.

Therefore, while we see further USD upside potential if chances of a summer hike increase, we would caution against broad-based USD longs until stronger US data eases market concerns about potential negative spillovers of further policy normalization.

FOMC Minutes: Very Divided Committee; We Still See A September Hike – Danske

The minutes from the FOMC meeting held in April revealed that the FOMC is more divided than we previously thought. In general, the FOMC members agreed that the labour market continues to strengthen, weak GDP growth in Q1 was likely a transitory dip and financial conditions have eased. But the agreement ended there.

The minutes state that while ‘several FOMC participants’ thought that risks are ‘roughly balanced’, ‘many others’ continue to see ‘downside risks’. Also, on inflation the FOMC members disagreed. While ‘several continued to see important downside risks to inflation’ from low inflation expectations, ‘many’ thought the recent developments ‘provided greater confidence that inflation would rise to 2 percent’.  So clearly we have a fight between ‘several’ and ‘many’, leaving some confusion on how to interpret the Fed.

Our main scenario is still that the Fed will wait with hiking until the FOMC meeting in September and only hike once this year among other things due to our judgement that most voting FOMC members are dovish.  By waiting until September the Fed has more time to judge incoming data and we will also be past the UK’S EU referendum. With respect to the latter the minutes state that ‘some participants noted’ that markets are sensitive to the upcoming referendum. That being said, the probability of a hike in either June or July has definitely increased on the back of the FOMC minutes and the door for June was never completely shut although we thought so – even despite the somewhat weak employment growth in April (the data were released after the FOMC meeting).

Notice that both Dudley (dove, voter) and Fischer (neutral, voter) are speaking tomorrow. Given their status within the FOMC and given the minutes, we think the markets will analyse their speeches thoroughly for any guidance.

FOMC Minutes: All Eyes On June 6 – Barclays

The minutes of the FOMC’s April 26-27 meeting adopted a modestly hawkish tone.  The committee seems generally comfortable with the near-term economic outlook, and most participants judged that, if incoming data continue to perform well, it would “likely” be appropriate to increase raise rates at the June meeting. With April activity indicators consistent with a healthy bounce-back in growth, we see risks of two rate hikes in 2016, with the first coming in the June/July time horizon.  We view Chair Yellen’s June 6 speech as likely determining the near-term path of policy.  When we last heard from her at the end of March, we judged her statements as consistent with at most one rate hike this year. However, most committee members now seem comfortable with two rate hikes, if not three, this year. The chair may be influenced by their views (or the ongoing resilience of the economy), or she could maintain her cautious outlook.

For the committee to raise rates as early as this summer, Chair Yellen will have to adopt a substantially more hawkish tone than she did in March, and she will need to clearly lay out expectations for the path of policy.  We maintain our forecast for one hike in 2016 and three in 2017 as we look ahead to Chair Yellen’s June 6 appearance.

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