Federal Reserve hikes 25bp, suggests another to come
At a Glance
Lead — The Federal Reserve's recent 25 basis point rate hike, coupled with indications of a potential second hike later this year, suggests a robust stance against inflation as outlined in the commentary. Per the full note, Chair Kevin Warsh's approach reflects confidence in solid economic activity while still acknowledging heightened uncertainty. Market pricing had already anticipated this move based on strong employment and inflation metrics. Current consensus suggests steady targets moving forward, with traders closely monitoring the implications for EUR/USD and GBP/USD.
Key Takeaways
- 01The Fed raised rates by 25 basis points, aligning with market expectations.
- 02Expectation of one more rate hike before a prolonged hold throughout 2027.
- 03EUR/USD has a current consensus target of 1.1684, reflecting varied market views.
- 04Continued monitoring of labor and inflation metrics is essential for traders.
Full Analysis
What the desk is arguing
The desk frames this as a crucial moment for the Fed, where the 25 basis point hike current target range of 3.75–4.00% underscores the urgency of a timely return to the inflation target of 2%. While the Fed projects another hike later this year, the market has largely priced this in already, anticipating heightened volatility in the FX landscape following these developments.
The Fed's resolute approach is highlighted by recent economic data—such as hotter job numbers—that support its rate hike decision. This unanimous decision signifies a clear commitment to fighting inflation, as noted in the commentary, which forecasts rates remaining elevated into 2027. Estimates suggest a potential additional hike could target a peak of 4.125% by year-end, aligning with market expectations.
Where it sits in our coverage
For the EUR/USD pair, our current consensus median target sits at 1.1684 for December 2026, with varied projections ranging between 1.1200 and 1.2000. Notably, socgen projects a range of 1.1400 to 1.2000, while morganstanley has a more optimistic outlook targeting 1.2150.
This desk's perspective aligns closely with the broader consensus, particularly given that the current projections place us within the upper-middle tier of forecast expectations for EUR/USD over the coming months.
How other firms see it
Firms like morganstanley and rbc are aligned in their bullish outlooks for the EUR/USD with targets that suggest potential appreciation. On the contrary, firms such as danskebank and nomura present a more cautious stance, projecting lower values by March 2026.
The interplay between ECB and Fed policies is critical for the EUR/USD trajectory, reflecting their contrasting monetary policy paths as we advance through 2026. Furthermore, the GBP/USD dynamics are similarly influenced by central bank movements, making it paramount to watch both sides as policy shifts unfold.
Market Implications
Traders should keep an eye on the 1.1700 level for EUR/USD as it may represent a breakout point following updated Fed guidance. Additionally, upcoming inflation data will further shape market expectations about the Fed's trajectory, especially ahead of the anticipated second rate hike.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
From the original
Articles Federal Reserve hikes 25bp, suggests another to come Published 19:44 FX Rates United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The Federal Reserve raised the policy rate 25bp and signalled they may raise rates a second time befor
Related speeches
4 itemsKevin Warsh navigates a hawkish Fed shift
The desk posits that the changing tone from the Federal Reserve, now led by Kevin Warsh, signals a potential shift toward future rate hikes amidst growing economic momentum and inflationary pressures. As outlined in the source commentary, the Fed Chair seems disinclined to provide explicit forward guidance, which creates uncertainty in market pricing for rate adjustments. The consensus for rate hikes has intensified, with a 25bp increase already priced in for this year, as inflation rates are reported at a three-year high of 4.2%. Per the full note [source], this evolving landscape offers a complex, albeit hawkish, backdrop for major currency pairs like EUR/USD and USD/JPY going into the latter half of the year.
Warsh guides forward without forward guidance
Lead — The desk sees a net hawkish tilt emerging from Chair Warsh's latest commentary at the Jackson Hole Symposium, signaling potential shifts in monetary policy without explicit forward guidance. Per the full note, Warsh emphasized the Fed's commitment to controlling inflation, asserting a belief that current inflation expectations might not be well-anchored, which has impacted both front and back-end rates. The current consensus for EUR/USD sits at 1.1700 for Mar26, aligning with this hawkish sentiment amidst a mixed outlook from various firms. In this context, traders should monitor the evolving interest rate landscape closely.