The FOMC meeting minutes from January 28, 2026, released yesterday evening, surprised the market with a significantly more hawkish tone than expected. The Fed emphasized ongoing inflation risks, described the economy as “solid,” and even discussed the possibility of a rate hike if inflation data continues to surprise to the upside. The immediate evening reaction was accordingly: the US dollar strengthened (EUR/USD down to 1.178), precious metals and indices declined. Overnight, however, the market reversed – EUR/USD climbed back toward the 1.18 level, gold above 5,000 USD, and indices recovered roughly half of the previous evening’s losses. Here are the details and initial assessment.
The Minutes: Hawkish and Open to Rate Hikes
Fed members continue to view inflation as too high and persistent, particularly in shelter and services. The economic outlook remains “solid,” and the labor market environment “balanced.” Notably: an explicit discussion of the possibility of a rate hike took place if data continues to surprise upward or inflation expectations rise. While the majority currently sees no need for such action, they stressed that the interest rate path remains “data-dependent” and “higher for longer” continues to be the guiding principle.
The market had hoped for somewhat softer language (e.g., earlier discussion of rate cuts). Instead, the dominant message is: no rush for cuts, with risks tilted toward the hawkish side. The CME FedWatch Tool now shows only ~45 % probability of a cut in June (previously ~50–55 %).
Evening Reaction: Dollar Strong, Risk Assets Under Pressure
The immediate reaction clearly reflected the shock of even mentioning a possible rate hike:
- EUR/USD fell to 1.178 (–0.5 %)
- DXY rose to 104.80 (+0.6 %)
- Gold fell back below the recently reclaimed 5,000 USD level (–1.2 %)
- S&P 500 –0.8 %, Nasdaq –1.1 %, DAX –0.7 % (after-hours)
Tech stocks and gold, which had been positioned for lower rates, were particularly affected. The 10-year Treasury yield rose to 4.28 %.
Overnight Recovery – Technical Bounce & Ongoing Uncertainty as Drivers
Overnight the market reversed sharply: EUR/USD rose back toward the 1.18 level, gold above 5,000 USD, and indices recovered roughly half of the losses. Oil prices continued to rise (WTI +0.3 % to around 65 USD, Brent +0.3 % to 70 USD), indicating persistent geopolitical tensions. The most likely drivers of the recovery are a combination of:
- Technical Counter-Movement: After the strong evening sales, many markets were oversold. Short covering + technical buying at key support levels (gold 4,950–5,000, S&P 5,800–5,850) triggered a bounce.
- Ongoing Uncertainty in the Iran Crisis: Reports of indirect talks (via Oman and Qatar) briefly fueled optimism, but the crisis has not de-escalated. Rising oil prices show that the risk persists – gold continues to benefit as a safe haven despite the Fed’s hawkishness.
- ETF Inflows & Market Sentiment: Strong buying in gold ETFs (BlackRock, SPDR) supported the price, while indices remained volatile due to light liquidity overnight (Presidents' Day aftermath).
Outlook: Hawkish Fed and Geopolitical Uncertainty
The hawkish tone of the Fed remains dominant: As long as no clear growth risks or inflation declines are visible, “higher for longer” remains the guiding principle. The next Fed meeting (March) will be decisive – until then the dollar could stay strong and gold and indices volatile. The Iran crisis remains a wildcard – any new escalation could catapult gold higher immediately, with oil prices reinforcing the effect.
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