Robert J. Williams 
EUR/USD broke above 1.0950 on 13 May after the Federal Reserve’s latest meeting minutes landed with a clear message: two 25 basis point (bps) rate cuts are on the table for 2026. The dollar sold off across the board.
The minutes, released from the Fed’s most recent policy meeting, showed officials growing more confident that inflation is tracking back toward the 2% target. That shift in tone was enough to send traders scrambling out of long-dollar positions.
What the FOMC Minutes Actually Said
Fed officials signaled they see room for 50 bps of easing this year, split across two separate cuts. No specific meeting dates were flagged for the first move, but the language pointed to the second half of 2026.
The key change from earlier this year: policymakers dropped much of the cautious “data dependent” framing that had kept markets guessing. Inflation, in their view, is no longer running hot enough to justify holding rates at current levels indefinitely.
That’s a meaningful pivot. For most of 2025 and into early 2026, the Fed held firm. Rate cuts were discussed but never delivered. The committee wanted more evidence that price pressures were fading, not just cooling temporarily. These minutes suggest they’ve seen enough.
Market Reaction: Dollar Weakens, Euro Jumps
The reaction was immediate. EUR/USD pushed through 1.0950, its highest level in weeks, as dollar bulls retreated. The move extended a broader USD selloff that had been building since early May on softer-than-expected economic data.
Other major pairs followed. GBP/USD and AUD/USD both gained ground, though EUR/USD saw the sharpest move — likely amplified by positioning ahead of the European Central Bank’s (ECB) next meeting.
Bond markets told a similar story. US Treasury yields dropped, with the 2-year yield falling as traders repriced the rate path lower. Futures markets now assign a 75% probability to the first cut arriving in September, according to CME FedWatch data.
Why This Matters Beyond Forex
Rate cuts don’t happen in isolation. When the Fed eases, it ripples through everything from mortgage rates to equity valuations to emerging market capital flows.
For forex traders specifically, the September cut probability is the number to watch. At 75%, it’s high but not locked in. That leaves room for the trade to reverse if upcoming inflation prints come in hot. One strong Consumer Price Index (CPI) reading and that probability drops fast.
Gold also stands to benefit. Lower US rates reduce the opportunity cost of holding non-yielding assets, and bullion has been consolidating near recent highs. A confirmed rate-cutting cycle could push it toward fresh records.
The Bigger Picture: Fed’s 2025-2026 Rate Path
The Fed’s journey to this point has been anything but smooth. After the aggressive hiking cycle of 2022-2023, rates plateaued. Markets spent most of 2024 expecting imminent cuts that never came. The “higher for longer” mantra held.
What changed was the data. Inflation measures — both headline and core — gradually declined through late 2025 and into 2026. Labor market tightness eased without triggering the recession many had predicted. That gave the Fed room to shift without looking like it was caving to market pressure.
Two cuts of 25 bps each would bring the benchmark rate down by a total of 50 bps by year-end. Not aggressive by historical standards, but enough to confirm the direction of travel.
Analyst Take
The Fed is threading a needle here. Cutting too early risks reigniting inflation expectations. Cutting too late risks tipping a cooling economy into contraction. The minutes suggest they believe the window is opening — but they’re not rushing through it.
September pricing at 75% feels about right. It leaves enough conviction for traders to position, but enough uncertainty to keep everyone honest. The real test comes with the next two CPI prints. If those confirm the disinflation trend, a September cut becomes a near-certainty. If they don’t, the Fed has given itself enough ambiguity to delay without losing credibility.
What to Watch Next
The June CPI release will be the first major data point that either confirms or challenges the rate-cut timeline. After that, the Jackson Hole symposium in August typically sets the stage for any September policy shift. Fed speaker commentary between now and July will also matter — any pushback on the September pricing could shift sentiment quickly.
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