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The FOMC minutes, of the April 30-May meeting, will be released on Wednesday at 18:00 GMT. At that meeting, the Federal Reserve kept the Fed Funds rate target unchanged at 2.25% to 2.50% as expected, in a unanimous decision.

Key notes

At the last meeting, the Fed kept rates unchanged as widely expected, and officials pointed to lack of inflation pressure outweighing the strong economic growth. Today James Bullard, president of the St. Louis Federal Reserve did not rule out a rate cute later this year if inflation continues to disappoint. The minutes are likely to show the cautious tone that prevails at the Fed. During the post-meeting press conference Chair Powell said the current policy was appropriate. At that meeting, the Fed cut the interest rate it pays on excess reserves (IOER).  

Analysts at Deutsche Bank point out that usually there would be a reasonable amount of focus on the minutes however, “given the trade developments since then it’s likely that they will be somewhat discounted as being stale. That being said, the inflation debate will still be relevant and as a reminder Powell noted that several “transitory” factors had been weighing on inflation of late.”

The coverage in the minutes around the inflation discussion will be its most important market focus, according to Joseph Trevisani, a Senior Analyst at FXStreet. “How many governors expressed concern? Were rate hikes broached as an eventuality if inflation continues to be weak?  The edited minutes of the FOMC meeting permit a more wide ranging view into the deliberations of the FOMC governors.  If they are growing wary about inflation this is where it will show“, he added.  

Implications for EUR/USD

Compared to the level it had following the meeting, EUR/USD is few pips lower. It rose only momentarily above 1.1250 two weeks ago but then pulled back under 1.1200. Since last week the pair has been falling steadily, moving very slow but with a clear downside bias. Better-than-expected US data has been supporting the greenback that rose despite the decline in US yields.  

If the minutes show a “hawkish” surprise, not expected at the moment, the greenback could rally strongly versus the Euro. The EUR/USD pair could drop below the 1.1140/50 support area that would expose the YTD low at 1.1110. Below the next medium-term support is seen at 1.1050. As markets await cautious minutes, it would take a significantly “dovish” minutes to weaken the US Dollar. The immediate support is now seen around 1.1180 and above at 1.1220. The main trend will continue to point to the downside as long as it remains under 1.1300/10 (downtrend line).  

Overall, the pair is making small moves and the FOMC minutes are not what it used to be, particularly after every meeting is being followed by a press conference, so the impact could be modest. Price action has been limited over the last six days to a 50-pips range in the EUR/USD pair. Any surprise from the Fed that generates moves would be welcomed by traders.  

About the FOMC minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.