Federal Reserve preview: A pause before a December hike
At a Glance
In anticipation of the upcoming FOMC meeting on October 28, the desk aligns with the expectation that the Federal Reserve will maintain interest rates despite recent inflation pressures. Per the full note from ing-think, Fed officials have indicated a need for more tightening, suggesting a December rate hike is on the horizon. The decision to pause in October reflects broader economic stability despite cooling sectors and mixed job numbers. This aligns with the sentiment across the FX market, where traders are assessing how these decisions will impact pairs like EUR/USD, GBP/USD, and USD/JPY as we approach year-end market dynamics.
Key Takeaways
- 01Expecting the Federal Reserve to hold rates in October, with potential for a December rate hike.
- 02Recent inflation data has not swayed Fed officials from a cautious approach to monetary policy.
- 03Current consensus for EUR/USD and GBP/USD targets shows a bullish sentiment as 2026 approaches.
- 04Market focus remains on the interplay between US economic data and Fed policy decisions.
Full Analysis
What the desk is arguing
The desk takes the position that the Federal Reserve will keep interest rates unchanged at the upcoming October FOMC meeting, positioning itself for a potential rate hike in December. This stems from recent signals from Fed officials who do not appear rushed to adjust monetary policy despite elevated inflation readings.
Key indicators, such as the September core CPI print, which rose 0.3% month-on-month, initially raised expectations for an October hike. However, comments from Fed leadership indicating a preference for caution have tempered these anticipations significantly, suggesting a stable path forward for the time being.
Where it sits in our coverage
Our current consensus for EUR/USD stands at 1.1253, with a target range for March 2026 seen between 1.1200 and 1.2000. Notably, rabobank and nomura have set their March 2026 targets at 1.1759 and 1.1700, respectively.
This view aligns closely with market expectations across firms, with many projecting a muted response until the policy environment shifts post-December; however, our set forecasts are at the upper bound of the current spread, reflecting a cautiously optimistic outlook.
How other firms see it
Several firms such as hsbc and citi also share an outlook supportive of sustained Fed policy into the end of the year, with euro and pound targets that suggest a measured risk approach. Conversely, firms including mufg have differing views, forecasting a more immediate tightening.
Given the correlation between Fed policy expectations and the performance of USD/JPY and GBP/USD, traders should be vigilant for any geopolitical or macroeconomic shifts that might affect these dynamics.
Market Implications
Watch for deviations from expected Fed guidance as a key market signal. The outcome of the October FOMC meeting could set the stage for December adjustments, particularly impacting USD pairs like EUR/USD and USD/JPY, currently priced at 1.1253 and 155.8160, respectively.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
TMGM | Neutral | 1.1450 |
MUFG | Neutral | 1.1200 |
From the original
Articles Federal Reserve preview: A pause before a December hike Published 14:41 FX Rates Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Despite hot inflation prints in September and the Fed having signalled that further action to tame inflation will