FOMC Minutes Keep Dollar Firm as Euro Slides on Policy Divergence

The Federal Reserve’s January FOMC minutes signaled continued concern over persistent services inflation and a cautious stance on rate cuts, supporting recent dollar gains. The committee was split on slowing balance-sheet runoff, leaving liquidity timing uncertain. Key drivers for dollar strength include higher U.S.–Eurozone interest-rate differentials (2-year Treasury yields roughly 150bp above German bunds), weaker global risk sentiment boosting safe-haven flows, and comparatively stronger U.S. growth indicators. Latest data: U.S. Q4 GDP +2.1% annualized, core inflation 2.8% YoY, unemployment 3.8%; Eurozone Q4 GDP +0.3% QoQ, core inflation 3.1% YoY, unemployment 6.5%. The euro faces structural and cyclical headwinds—dovish ECB rhetoric, fragile manufacturing, political uncertainty, energy risks and fiscal fragmentation. Technically EUR/USD meets strong resistance near 1.0850 (200-day MA ~1.0832) with support around 1.0720–1.0700; a break below 1.0700 could open declines to 1.0650. Market positioning shows leveraged funds increasing net dollar longs; options markets reflect demand for dollar upside protection. DXY rose to ~104.85 then settled near 104.65; EUR/USD trades near 1.0760. Traders will watch upcoming Fed (Mar 19–20) and ECB (Apr 10) meetings and data for guidance on rate-cut timing. Implications: stronger dollar raises emerging-market debt servicing costs, pressures commodity prices and alters trade balances—benefiting some exporters while increasing import-driven inflation in the eurozone. This dynamic mirrors past Fed–ECB divergence episodes but with different starting inflation/fiscal contexts. (Disclaimer: not trading advice.)