Claude Team

Summary

Fed minutes released today reveal internal division on rate cuts, with officials emphasizing that lower inflation is needed before supporting cuts, while acknowledging January's pause. Simultaneously, ECB leadership succession uncertainty (Lagarde's early departure) and strong USD momentum create a mixed backdrop. The Fed's hawkish hold and inflation-dependent guidance support USD strength, but ECB transition risk and geopolitical safe-haven flows (gold +2%) introduce offsetting EUR support.

Key Points

• -Fed inflation-dependent guidance is hawkish relative to market expectations for 2026 cuts; this supports USD but is not a surprise — already reflected in recent price action
• -ECB succession uncertainty is a wild card: new leadership could signal policy shift; monitor Knot/De Cos positioning on rates and QE
• -January jobs beat removes near-term recession risk, reducing safe-haven EUR demand; this is a structural headwind for EUR/USD
• -Gold's +2% surge on geopolitical jitters suggests risk-off undertones; if this intensifies, EUR may outperform as secondary safe haven, offsetting Fed hawkishness
• -Next critical data: US inflation (CPI/PCE) and ECB communications on successor; these will clarify the rate-cut timeline and ECB policy direction

Market Impact

SHORT-TERM BEARISH for EUR/USD (USD strength bias). The Fed minutes reinforce a data-dependent, inflation-focused stance that delays rate cuts — supporting USD. January's strong jobs data removes recession fears and hardens the Fed's resolve. However, confidence is moderate (0.62) because: (1) ECB leadership vacuum creates EUR uncertainty in both directions; (2) geopolitical safe-haven flows (+2% gold) could support EUR as a secondary safe haven; (3) the 'rate-cut delay' narrative is already priced into recent USD strength. Estimated magnitude: small to moderate USD appreciation (50–100 pips EUR/USD downside) over the next 1–2 weeks, contingent on inflation data ahead.

Key Events

• *Fed minutes (2026-02-18 20:00 UTC): Officials signal rate cuts require lower inflation; division noted beneath January pause
• *ECB succession: Lagarde to depart early; Knot and De Cos in frame for replacement
• *January US jobs surge: Crushes estimates, stiffens Fed resolve against near-term cuts
• *Gold +2% rally: Reflects geopolitical jitters despite Fed rate-path uncertainty

Risk Events Ahead

• !ECB successor announcement: Could trigger EUR volatility depending on candidate's policy stance (hawkish vs. dovish relative to Lagarde)
• !US inflation data (CPI/PCE, likely late Feb/early Mar): Will test Fed's inflation-dependent guidance; if hotter than expected, extends USD strength; if cooler, accelerates rate-cut expectations
• !Geopolitical escalation: Further safe-haven flows could support EUR despite Fed hawkishness