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The Federal Open Market Committee (FOMC) minutes, of the 10-11 December meeting, will be released on Friday at 19:00 GMT. Usually, the central bank releases the minutes on Wednesdays, but today will make an exception due to holidays. At the December meeting, the Federal Reserve (Fed) kept the Fed Funds rate unchanged at between 1.5% and 1.75%. The decision was unanimous. 

Key notes

At the last meeting, the Fed kept rates as expected and FOMC members signaled no significant changes for 2020. They projected no change in 2020 and a rate hike in 2021. The minutes could show how far the Fed is from making any changes over the next meetings. At the moment, market expectations point to no change in rates in the near to medium term. But, two events today (escalation US-Iran tensions and a weaker than expected US ISM Manufacturing reading) suggests the outlook presented at the last meeting of 2019 is not risk-free and could change. 

The killing of an Irian commander today took the minutes out of focus. Market participants are expecting no surprises from the minutes, particularly considering the decision was unanimous and that the statement contained no new elements. Also, today’s events and the US/China deal left the minutes outdated. 

Analysts at Rabobank are skeptical about the “dot plot.” “Cracks are starting to appear in the US economy and a mild recession appears to be in the making.” They see potential for rate cuts this year.  “The big question is what economic data constitutes this ‘material reassessment’ that the Fed requires to conform to this view.”

Implications for USD/JPY

The USD/JPY is trading around 108.00, at the lowest in two months. It has constantly been falling since last week, after being unable to break the 109.70 barrier. The decline of the pair stared with a correction of the greenback and today it gained speed on the back of risk aversion and lower US yields. 

If the minutes trigger some demand for Treasuries (dovish outcome), then USD/JPY could drop further below 108.00. The first support might be seen at 107.75, followed by 107.45. On the upside, now 108.45 is a relevant resistance level and then comes 108.95/109.00. If the greenback recovers above 109.00, it would remove the short-term bearish pressure. For the dollar to benefit, the minutes would have to present a positive outlook, showing practically no expectations of further cuts,  even in a scenario where the economy deteriorates. 

About the FOMC minutes

FOMC stands for Federal Open Market Committee. It organizes eight meetings per year where it 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.