ING’s Chris Turner notes that the January FOMC minutes confirmed the New York Fed checked USD/JPY rates for the US Treasury, reinforcing perceptions that Washington is comfortable with a weaker Dollar. He highlights that most Fed officials want clearer evidence of lower inflation before cutting again, but ING still expects two rate cuts this year, with near-term data potentially lending the Dollar some support.

Fed signals patience before further cuts

"The release of the January FOMC minutes last night confirmed that the New York Fed did check USD/JPY rates on behalf of the US Treasury last month, adding to the view that Washington wouldn't mind a weaker USD."

"The other takeaway from the minutes was that most of the Fed needs to see lower inflation before cutting rates again."

"Newswires latched onto the view that several participants would prefer a two-sided description of the Federal Reserve's future rate intentions to reflect that it could actually hike if inflation remained at above-target levels."

"However, the broad takeaway from the minutes seemed to be: a) downside risks to employment had lessened, b) activity was seen as relatively strong and c) that an expected softening in inflation could pave the way for further rate cuts later in the year."

"Our takeaway is that the emphasis will now shift from the labour market back to the inflation readings. These need to fall to validate the two rate cuts still priced into money markets this year. We think that will be the case and that the Fed will indeed cut twice."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)