Minutes of the Federal Reserve’s January policy meeting were released yesterday and showed that officials were more concerned about the risks of moving too soon to cut interest rates than waiting too long. The minutes showed that policymakers want to see more evidence that inflation is firmly on a path to the central bank’s 2% target before lowering interest rates. Overall, the minutes appear to suggest that the recent message that borrowing costs will remain high for the foreseeable future is still in play. This comes after the recent above consensus labor market report and sticky inflation data, prompting analysts to dial back on expectations of early rate cuts with the market currency expecting the FOMC to deliver the first interest rate cut at the June policy meeting.
The single currency rallied against the under-pressure greenback yesterday, with EURUSD holding solidly above 1.08 as the market awaits key PMI data and the release of the minutes of the last ECB policy meeting. This morning’s euro area composite PMI survey for February will likely provide an indication of whether GDP growth in the bloc continued to gain momentum after a gain in January from December. Markets will also pay close attention to the release of the minutes of the January ECB policy meeting, looking for clues on the timing of the first rate cut.
GBPUSD is back above 1.2650 after slipping yesterday, with the move seen as more of dollar weakness than sterling strength. Markets are looking forward to the release of flash February PMI data for the UK, which is expected to gain a touch, suggesting that the economy continues to gather momentum at the start of the year after a technical recession was recorded at the end of last year.
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