Impact of Fed Minutes overshadowed by geopolitical risk

The impact of the Fed Minutes on the markets was quite different from the earthquake caused by the publication of the previous ones: long rates eased slightly and the implied probability that the Fed will raise its key rate by 50bp in March fell back below 50%. But the rise in geopolitical risk with incidents on the Russian-Ukrainian border and the US administration denying any withdrawal of Russian troops is probably disrupting the analysis. It is indeed written in these Minutes: “Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate“. And this is precisely what has since happened with the rise in inflation in January, then the acceleration of wages and, again yesterday, very strong activity figures in January: +3.8% mom for retail sales and +1.4% mom for industrial production.

The EUR/USD exchange rate briefly plunged to 1.1323 in reaction to the news from Ukraine, but recovered to 1.1350. It should be noted that, as in Europe and the United States, Japan’s trade balance is clearly deteriorating due to higher energy prices and increased imports from China. Jobless claims and the Phily Fed index are the main economic indicators released today. Several members of the Fed will also speak, including James Bullard.