MUFG on Fed Minutes - FJElite

The USD/JPY high today of 158.51 is just at the 200-day moving average level and if breached would certainly signal scope for further gains over the short-term. Some of the upward momentum for the US dollar has eased following the US employment report last week but the data has not had a notable impact on market expectations for the Fed with three further 25bp hikes priced through to mid-2027. An October hike now looks unlikely and the 5-6bps of pricing reflects uncertainty around the CPI data released next Wednesday. A failure of the Fed to hike this month is unlikely to do much damage to US dollar sentiment. The FOMC minutes from the September meeting will be released this evening and market participants will be looking for indication of how much further the fed funds rate could go. Fed Chair Warsh at that meeting stated that the Fed was removing “a dose" of monetary accommodation and stated that he was “hard-pressed" to describe conditions as restrictive. So are those views widespread across the FOMC and how do FOMC members measure financial conditions?

Given the dots profile, we will likely see minutes that likely broadly endorse current market pricing for rate hikes ahead and that should mean the support for the US dollar is maintained for now. We do still believe the Fed will not deliver what is currently priced but we need to see evidence of measures of inflation slowing and it’s too soon for that.