Dollar rallied across the board after release of FOMC minutes that were interpreted as more hawkish than markets anticipated. Strength was most visible against Yen, with USD/JPY back at around 155.
The key takeaway is not that the Fed is turning hawkish, but that uncertainty around future cuts is greater than previously assumed. While easing remains the base case, the minutes make clear that it is far from guaranteed. Risks to Fed’s dual mandate appear to have shifted. “Vast majority” of policymakers judged that downside risks to employment have “moderated”, while risks of persistent inflation “remained”. Some participants even commented that the balance of risks had moved back toward inflation.
One striking detail was that “several” officials floated the possibility of rate hikes if inflation fails to recede. The minutes noted that a two-sided description of future policy — including potential upward adjustments — could be appropriate under certain conditions. At the same time, “some” participants argued for holding rates steady for an extended period until disinflation progress is firmly back on track. Others reiterated that further easing would be appropriate if inflation declines as expected. The debate highlights the tilt against imminent cuts.
Market reaction was restrained but notable. March hold probability rose toward 94%, and June cut odds hover near 61%. The shift is incremental rather than dramatic But for Dollar, nuance mattered. The suggestion that hikes are back on table — even if unlikely — shifts perceived policy asymmetry. That underpins USD strength, particularly against low-yielders such as Yen.
Technically, USD/JPY’s extended rebound and break of 154.63 minor resistance suggests that fall from 157.65 has completed at 152.25 already. 38.2% retracement of 139.87 to 159.44 at 151.96 is well defended. That keeps the price structure from 159.44 corrective, and also keeps the up trend from 139.87 (2025 low) intact. More upside would now likely be seen back to 157.65/159.44 resistance zone, even though a break above 159.44 to resume the up trend still looks premature.
