FX Midweek Outlook 5 Jan 2023

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FOMC Meeting Minutes Summary 

Surprise surprise, the Fed is still worried about inflation being sticky while mentioning that more evidence would be required for them to be confident in price pressure cooling down.  The minutes stated that a slowdown in the pace of rate hikes would allow the Fed to assess the progress on inflation and employment. 

As for rate cuts, it is still a no in 2023. Based on the Summary of Economic Projections, no members are expecting a rate cut this year. The benchmark rate is projected to be 5.1% with 17 out of the 19 votes seeing the key rate above 5% by the end of the year. 

The committee also emphasized the importance of flexibility and optionality in policy choices and warned that an unjustified relaxation of financial conditions could make it harder to regain price stability.

What do traders and investors think?

The markets continue to price in a more dovish view in spite of the hawkish meeting minutes and the Fed’s own forecasts for a terminal rate of above 5.00%. FX Majors including the EURUSD and USDJPY were quiet during and after the minutes’ release.



The Fiber didn’t even budge, having moved just a little over 20 pips in half an hour following the release of the meeting minutes. EURUSD remains indecisive around the 1.0610 level though its higher low is still intact.

The spotlight will be on the Non-farm payrolls for the rest of the week and if the greenback couldn’t gather enough strength and conviction, we may see the pair continue its rally toward the 1.0770 key resistance area. An NFP print greater than the 200k consensus could bring some hope and boost the US dollar, and vice versa.



There wasn’t much direction for USDJPY either. The pair wiggled just a little under 30 pips in half an hour following the release. What’s interesting was the solid bounce away from the 131.000 key support yesterday. Could that be a higher low being made and spelling good news for the US dollar after a prolonged decline from the 152.000 level? NFP might tell!

Ru Yi 
Financial Market Analyst

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