The release of the FOMC meeting minutes prompted market participants to re-evaluate expectations of a Fed rate cut this year.

The US Dollar edged lower in the major pairs on Thursday trading (January 4), but still maintained the position it reached after yesterday's rebound. The US Dollar Index (DXY) circulated in the 102.30s at the start of the European session, while market participants re-evaluated expectations of a Fed rate cut this year.

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The greenback depreciated at the end of 2023 as most market participants expected the Fed to cut interest rates aggressively in 2024. However, several reports released earlier this year signaled that market expectations had been overstated.

The minutes of the FOMC meeting held in December explained that Fed officials believe US inflation has started to come under control. They are also concerned about the negative impact of too high interest rates on the economy. However, there is no clarity on when the Fed will start cutting interest rates.

A handful of experts think that other central banks that are still hawkish at the moment - such as the ECB and BoE - are at risk of cutting interest rates earlier. Their skepticism has prompted more market participants to re-evaluate the Fed's rate cut prospects.

CME data shows a 72% chance of a Fed rate cut scenario starting in March. The probability is down from 87% last week.

"The messaging that rates will stay elevated raises a second look at the aggressive cut expectations markets are pricing," said Christopher Wong, a currency strategist at OCBC. "Some of the factors driving the US dollar rebound so far are global growth concerns, risk-off sentiment in US equities, and markets partially unwinding their aggressive bets on Fed rate cuts."

Separate US economic data is still giving mixed indications. ISM reported a slight improvement in the December US Manufacturing PMI score, but the figure still sits below the 50.0 threshold - signaling continued contraction. JOLTs Job Vacancies data missed expectations in November, but was revised upwards for October.

Market participants next highlight the release of Nonfarm Payroll data on Friday. The report could prompt continued fluctuations in Fed interest rate speculation.