The FOMC minutes reconfirmed that the Fed's interest rates will remain restrictive, even if the central bank does not raise interest rates again.

The US Dollar rallied following the release of the minutes from the October 31-November 1 FOMC meeting. The US Dollar Index (DXY) recorded a rise of around 0.5% to a high of 104.20s in the New York session on Wednesday (22/November). The greenback returned stronger against the euro, yen, and the Antipodean currencies in line with analysts' previous forecasts.

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The FOMC minutes reiterated that the Fed's interest rates will remain "restrictive" for a considerable time, even if the central bank does not raise interest rates again. The minutes also emphasized that the central bank will proceed with caution and that "all meeting participants judged it appropriate to maintain" the current interest rate setting.

The FOMC meeting participants agreed that they would raise interest rates again if the progress of controlling inflation faltered. Therefore, given the latest US inflation report was nil, the market is increasingly confident that the Fed will keep interest rates at a range of 5.25%-5.50% in the upcoming December meeting.

Recent market data also recorded a slight decline in the odds of a Fed rate cut in March 2024 from around 30% to 28%. Unfortunately, the minutes failed to completely quell the speculation surrounding the "Fed rate cut" that was rampant in the market. The majority of market participants expect the Fed to begin its monetary easing cycle in 2024, although perhaps not as soon as March.

"Almost four rate cuts are fully priced for next year and that looks very aggressive," said Niels Christensen, chief analyst at Nordea. "That said, it's not unusual for the Fed to cut by 50 basis points when they start cutting, so it could be possible," Christensen added.

Speculations surrounding the Fed's rate cut could continue to pose a bearish threat to the US dollar for months to come. However, in the short term, the hawkish tone in the latest FOMC statement still supports the USD along with some other economic data.

The US jobless claims report released today declined from 233k to 209k. The November 2023 Michigan consumer sentiment also showed slightly better-than-expected figures, albeit lower than the previous period. All of this proves that the US economic situation is still relatively more resilient than some of the other majors such as the UK and the Eurozone.