Fed Preview: Three scenarios and their implications for EUR/USD and USD/JPY – TDS
|Economists at TD Securities discuss the Federal Reserve interest rate decision and its implications for EUR/USD and USD/JPY.
Hawkish (20%)
“The FOMC delivers a 25 bps rate hike, but separates ongoing liquidity strains in the banking system and its dual mandate of full-employment and on-target inflation, with the latter still significantly out of sync. Chair Powell signals that more interest-rate increases are in the pipeline. The median dot for 2023 rises. USD/JPY 133.90/00, EUR/USD 1.0680/00.”
Base Case (55%)
“Fed delivers a 25 bps rate hike, acknowledging recent financial-market turmoil has raised uncertainty about the outlook. However, the Committee signals that the job is not done yet, as inflation remains overly elevated. We expect the chairman to reiterate that, while the FOMC will remain ever more data-dependent, it judges that ongoing rate increases might still be appropriate. USD/JPY 132.70/80, EUR/USD 1.08.”
Dovish (25%)
“Fed pauses rate increases, and flags rising uncertainty in the path forward for policy. The Committee notes that recent market turmoil is likely to adversely impact financial conditions and curtail lending in the medium term even if there's no broad contagion in the banking system. Powell mentions that the best course forward is to be patient given the ongoing headwinds facing the economy. The median dot for 2023 is lowered, with the chairman also reiterating the Fed's desire for a soft landing. USD/JPY 130.60, EUR/USD 1.0880.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.