Forex Top Team

Will the Dovish Surprise Resurface in the FOMC Minutes?


Today’s focal point appears to be the FOMC minutes released in the early hours of December 14th, Japan time. This meeting previously resulted in a dovish surprise. While the policy interest rate was left unchanged as expected, the FOMC members’ interest rate projections (the dot plot) indicated three 25-basis-point rate cuts in 2024, which exceeded market expectations. Furthermore, the statement removed the phrase “if needed, additional rate hikes will be implemented” and instead retained the expression “the pace of tightening will be assessed.”

In response to the above developments, US bond yields experienced a sharp decline, and the forex market saw a strengthening of the weakening US dollar. However, since the end of last year and into the new year, there has been a trend of US dollar buying. Yesterday, the US dollar was notably bought aggressively. The question now is whether the US dollar buying is merely a correction or if it will establish a new trend. Alongside the US employment statistics due at the end of the week, the market’s reaction after today’s release of the FOMC minutes will be a litmus test.

In the global market later, economic indicators to be released include Turkey’s Consumer Price Index (December) and Producer Price Index (December), Switzerland’s SVME Purchasing Managers’ Index (PMI) (December), Germany’s employment statistics (December), the US MBA Mortgage Applications (December 23 – December 29), the US ISM Manufacturing Purchasing Managers’ Index (December), and the US JOLTS Job Openings (November), among others. Ahead of Friday’s US employment statistics release, it would be prudent to monitor ISM’s employment-related components and job openings to see if any surprising results emerge.

Regarding speaking events, the FOMC minutes mentioned earlier will be the most closely watched. Additionally, there is a scheduled speech by Barkin, the President of the Richmond Federal Reserve Bank.

As market liquidity has not fully returned yet, the release of the ISM Manufacturing PMI, JOLTS Job Openings, and the release of the FOMC minutes are areas where significant movements may occur if the results deviate from expectations. Therefore, they warrant close attention.

Crude oil continues its downward trend, but it appears that the Canadian dollar (CAD) has not followed suit. Since the movement is somewhat unpredictable, it is wise not to add to the CAD sell-off position for now.