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Market focus is firmly fixed on the FOMC minutes today. Over recent sessions, we’ve seen US yields rising and stocks falling as traders brace for a potentially hawkish set of minutes which will likely pave the way for a larger hike in March. The Fed slowed the pace of tightening to 0.25% in January, down from 0.5% in December and 0.75% in October and into the end of last year, expectations were increasingly dovish with traders even starting to price in a rate cut ahead of the end 2023.
 

US Data Strength

However, with inflation having spiked again in January and recent data showing that the US economy has been hit nowhere as hard as expected by the Fed’s tightening campaign, hawkish expectations have resurfaced. Jobs surged higher in January, blowing well past the market’s forecasts while the unemployment rate fell to its lowest level since 1969. At the same time, retail sales jumped higher and preliminary GDP was also seen beating expectations. This week we saw both the services and manufacturing PMIs rise with the services sector reading now back in growth territory.
 

Hawkish Fed Comments

Amidst this recent stream of better-than-forecast data, we’ve also heard plenty of hawkish Fed commentary. The majority of members have called on the Fed to continue ahead with rate hikes throughout this year including calls to hike rates above the current peak and to continue for longer than forecast. We’ve also heard arguments for a larger hike in March on the back of the jump in inflation.
 

Upside USD Risks

So, this is the backdrop for today’s meeting minutes. Given the setup, any hawkish details from today’s minutes will likely be taken as a signal that a larger hike is coming in March, sending USD higher near-term and pulling risk assets lower. In particular, if there was any support for hiking by a larger .5% in January (dissenting against a .25% hike) this will be particularly bullish for USD.
 

Technical Views

AUDUSD

The move into recent highs saw plenty of bearish divergence in momentum studies and price has now reversed lower breaking down out of the bull channel from last year’s lows and below the .6857 support level. While price holds below here, and with momentum studies bearish now, the focus is on a further push lower toward the .6681 level next

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