Morning Brief – Battle of the Minutes

Charles Porter
Thu 22 Feb 2024

Battle of the Minutes

Overnight it was the minutes from the prior Fed meeting that were scrutinised. Immediately in its shadow will be the ECB’s minutes, due to be released early this afternoon. The Fed has been highly successful this month in dragging an over-zealous bond market back onto its track. The ECB by contrast has, if anything, provided an escape route. Those traders abandoning the camp of those expecting excessive Fed rate cuts this year may have found some company betting against the ECB’s ability to maintain current borrowing levels instead. Last night’s minutes were no different and may continue to favour such a move. 

EURUSD has been constrained so far this year by the market beginning to believe in the Fed’s reluctance to cut rates. The market always knew the Fed would talk a good game about keeping interest rates high and the danger of cutting too soon. But given some 6+ rate cuts were expected moving into this year, we know few expected the FOMC to put its votes where its Chair’s mouth was. The message from the Fed was clear in the minutes released overnight: most officials agree that the risk of holding rates too high is likely far less damaging to the economy than cutting too soon would be. 

Despite inflation coming under control well in the US, strong data in statistics including the labour market and growth has delivered credibility to the Fed’s game of chicken with the market. Whilst the Eurozone’s own data spectrum is far from disastrous, it hasn’t afforded the ECB with the same kind of headroom. The minutes will ultimately do the latest set of talking but some EURUSD selling pressure might be expected today at 12:30PM when the ECB’s minutes are published. The final revision to January’s inflation reading will also be published for the Euro area as a whole at 10AM GMT, expected to record at 3.3%.

Discussion and Analysis by Charles Porter

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