Fed Minutes Spotlight USD/JPY as Dollar Rally Wavers

Key Moments

The Fed minutes showed that the New York Fed checked USD/JPY levels for the US Treasury. This is unusually direct attention to a currency pair.
Most Fed officials want clearer evidence of lower inflation before cutting rates further. Money markets still price in two cuts this year.
European equities outperformed US benchmarks in dollar terms. This supports a firm trade-weighted euro, even with ongoing demand for US assets.

Fed Minutes Highlight Cautious Rate Approach

The January FOMC minutes confirmed that the New York Fed checked USD/JPY levels for the US Treasury. This reinforced the idea that US authorities are open to a softer dollar. At the same time, the minutes showed most Fed officials want more proof of declining inflation before reducing rates again. Consequently, the current dollar strength seems stretched.

Dollar Upside Limited Despite Post-Minutes Bounce

After the minutes, the dollar rose. Market participants noted that some officials favored balanced guidance, leaving open the possibility of rate hikes if inflation stays high. However, three key points stood out: employment risks are seen as reduced, economic activity is solid, and moderation in inflation could allow rate cuts later.

Policy focus appears to be shifting back toward inflation data, rather than labor markets. For the two rate cuts in money market pricing to occur, inflation must continue to decline. Officials expect this outcome and anticipate delivering two cuts.

USD/JPY Rate Check Signals Coordinated Concern

One notable detail in the minutes was the explicit USD/JPY rate check. The New York Fed assessed USD/JPY prices for the US Treasury. This likely occurred on Friday, January 23, around 5:00pm London time, when USD/JPY traded near 157.

Such checks are uncommon and indicate a more active stance from Washington. The timing aims to maximize market impact and show a shared goal with Tokyo: avoid a sustained break of USD/JPY above 160. With aligned policies—Fed easing and Bank of Japan tightening—asset managers may sell USD/JPY in the 156-158 range.

Currency Pair / Index	Key Level / View	Commentary
USD/JPY	Around 157 at rate check; 156-158 sell zone	Rare Fed check for US Treasury; joint goal with Tokyo to avoid 160
DXY	Could drift toward 98.00	Near-term support exists, but broader “sell dollar rally” bias persists
EUR/USD	Not justified under 1.18; March near 1.19	Euro supported by European inflows and equity gains
EUR/CHF	Under pressure	Swiss franc strong; one 25bp SNB cut priced over next year

Data Watch: Jobless Claims and Trade Balance

Attention will turn to weekly initial jobless claims and the December US trade balance. US President Donald Trump noted on social media that the trade deficit narrowed 78% last year. A smaller-than-expected December deficit could support a strong 4Q25 GDP and provide the dollar short-term support.

Even so, the DXY may drift toward 98.00. Overall, the market still favors fading dollar strength.

EUR Supported by Equities and Capital Flows

European equities have significantly outperformed US benchmarks this year. Measured in dollars, the Eurostoxx 50 nearly doubled S&P 500 gains. Yet, a broad rotation from US assets into Europe is not fully confirmed by US Treasury TIC data.

In December, foreign investors bought US equities worth $65bn privately and $31bn officially. US residents acquired $15bn of foreign stocks. Strong euro-area inflows help maintain a firm trade-weighted euro.

If the dollar weakens further, currency dynamics could outweigh short-term interest rates. Markets may price in a more confident ECB rate cut. Therefore, EUR/USD trading below 1.18 is not justified, and a March forecast near 1.19 remains.

CHF: Persistent Strength Challenges SNB

The Swiss franc remains very strong. Inflows may reflect concerns over dollar debasement or potential US-Iran tensions. The Swiss National Bank has limited tools to counter appreciation.

EUR/CHF’s recent decline was unexpected, but continued US military buildup in the Middle East may keep pressure on the franc. The SNB is reluctant to resume negative rates, yet markets could price a 25bp cut over the next year. Currently, implied rates are around -12bp.

Important Notice

Disclaimer: This publication is prepared by ING solely for information purposes. It does not constitute investment, legal, or tax advice, nor an offer to buy or sell financial instruments. Read more.