Fed Minutes to shed light on deeply divided committee over next interest-rate cut

• The Minutes of the Fed's October 28-29 monetary policy meeting will be published on Wednesday.
• Details surrounding the discussions on the decision to cut the policy rate by 25 bps will be scrutinized by investors.
• Markets are split on whether the Fed will cut the policy rate again in December.

The Minutes of the United States (US) Federal Reserve's (Fed) October 28-29 monetary policy meeting will be published on Wednesday at 19:00 GMT. The US central bank decided to cut the policy rate by 25 basis points (bps) to the range of 3.75%-4% at that meeting, but Fed Governor Stephen Miran voted in favor of lowering the fed funds rate by 50 bps, while Kansas Fed President Jeff Schmid preferred no change.

Jerome Powell and company opted to reduce the policy rate in October

The Federal Open Market Committee (FOMC) decided to cut the interest rate by 25 bps in October, as widely anticipated. In the policy statement, the Fed acknowledged that job gains slowed and the unemployment rate edged up, but reiterated that inflation remained "somewhat elevated." Additionally, the Fed announced that it will conclude the reduction of its aggregate securities holdings on December 1.

In the post-meeting press conference, Fed Chairman Jerome Powell noted that one more 25-bps rate cut in December "is not a foregone conclusion," and added there were strongly differing opinions among policymakers on what the next step could be.

TD Securities analysts expect the FOMC Minutes to reveal the extent of the internal debate that led to a hawkish cut in October. "Since the meeting, the hawks have gained the upper-hand in public remarks amid a lack of official data releases. The end-of-QT October announcement will also get airtime in the minutes, as we expect reserve management purchases to be announced at the January FOMC," they said.

When will FOMC Minutes be released and how could it affect the US Dollar?

The FOMC will release the Minutes of the October 28-29 policy meeting at 19:00 GMT on Wednesday.

According to the CME FedWatch Tool, markets are fully pricing in about a 50% chance of a 25-bps rate cut in December, down from nearly 70% a week earlier. This market positioning suggests that the US Dollar (USD) faces two-way near-term risk.

In case the publication suggests that policymakers are willing to keep the policy rate unchanged to buy time to assess the impact of the government shutdown on the economy, investors could lean toward a policy hold in December and allow the USD to gain some strength against its rivals. Conversely, the USD could have a difficult time staying resilient against other major currencies if Fed officials voice growing concerns over the labor market conditions while adopting an optimistic view on the inflation outlook.

Nevertheless, the market reaction to the FOMC Minutes could remain short-lived, as investors are likely to wait for the economic data backlog to clear before positioning themselves for a Fed rate cut or a policy hold in December.

Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief outlook for the USD Index:

"The Relative Strength Index (RSI) indicator on the daily chart edges higher to 58 after rebounding from the midline, reflecting increasing bullish momentum. On the upside, the 200-day Simple Moving Average (SMA) aligns as a key resistance level near 101.30. In case the USD Index makes a daily close above this level and starts using it as support, technical buyers could take action. In this scenario, 101.40 (Fibonacci 38.2% retracement level of the January-July downtrend) could be seen as the next resistance level."

"Looking south, the first support area could be seen between 98.20 and 97.70 (100-day SMA, 50-day SMA, round number, 20-day SMA) ahead of 96.25 (end-point of the downtrend)."