U.S. Dollar Retreats as Fed Minutes Hint at Rate Cuts Ahead
Market adjusts expectations as internal Fed debate points to potential September easing
The U.S. dollar weakened after the Federal Reserve published the minutes of its June 17–18 meeting, showing a growing division among policymakers over tariffs, inflation, and interest rate direction. Although rates remain in the 4.25%–4.50% range, a portion of the committee now favors easing policy as early as September. This shift rattled the dollar’s momentum, prompting a broad-based retreat across major currency pairs.
Markets have priced in virtually no chance of a rate cut in July, but traders now assign a 63% probability of easing in September. That change in sentiment drove down the U.S. Dollar Index (DXY), which has hovered near two-week highs, but remains vulnerable if dovish signals increase.
The Fed minutes revealed growing concern about the inflationary impact of new tariffs on imports, particularly from Japan and South Korea. Some members downplayed the effect, seeing it as temporary, but the majority warned of persistent inflation if trade restrictions intensify.
The vote split was revealing: two officials supported an immediate rate cut, ten forecast at least two reductions by the end of the year, while seven anticipated none and a few expected just one. That divergence injected more uncertainty into market expectations, increasing volatility.
The DXY now faces near-term support between 97.60 and 98.20, with technical resistance possibly forming around 98.50 to 99.00. Analysts warn that if future data confirms a softening economic outlook, the dollar could break lower.
Labor data added another layer of complexity. In June, the U.S. economy added 147,000 jobs and held the unemployment rate steady at 4.1%, reinforcing the Fed’s cautious stance. With employment relatively strong, the committee appears willing to wait for clearer inflation trends before acting.
All eyes now turn to the next Consumer Price Index (CPI) release. Should inflation remain subdued, the case for easing strengthens. Conversely, any spike tied to tariffs or wage growth may delay action. Either way, the market is bracing for significant movement.
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