Fed decision seems unnecessary – Commerzbank

This week, the markets still face five central bank decisions in the G10 currencies ahead: the Fed on Wednesday, on Thursday the Nordic central banks as well as the Bank of England and the Bank of Japan, Commerzbank’s FX analyst Antje Praefcke notes.

The focus is on Wednesday's Fed decision

“The market was temporarily in doubt whether a cut would come in December, but has since re-priced it. Our experts also expect the Fed to cut by 25 basis points, but that it could well take a pause at one or the other meeting next year. Our specialists expect the terminal rate to be 4%, the market sees it slightly lower.”

“It will be interesting to see how Fed Chairman Jerome Powell comments on the outlook and how the new projections and dot plots turn out. It is possible that the market will have to adjust its interest rate expectations again somewhat. Accordingly, the dollar could move again shortly before the end of the year. If the market feels it needs to reduce its rate cut expectations even further, the dollar could strengthen again. However, its gains are likely to be limited as the market has already scaled back its rate cut expectations in recent weeks.”

“We think that no major reassessment of the Fed's future monetary policy is necessary at this time. This may change with further US data and/or with the new US president and his opinion on monetary policy. However, it is difficult to predict the possible changes in the Fed's approach that may result from this, and the new US president's erratic statements and plans are almost impossible to predict. The only thing we can do is to advise you to hedge the side that could hurt you the most as long as we are still in reasonably calm waters in the foreign exchange market.”