Barkin sees interest rate hikes ahead, but at a gradual pace
Federal Reserve Bank of Richmond President Thomas Barkin indicated that the central bank is poised to continue raising interest rates, albeit at a gradual pace. This approach reflects ongoing concerns about inflation, suggesting that while the monetary policy is adapting to economic conditions, it will not lead to any immediate aggressive adjustments in the terminal rate. Such a stance supports a bullish outlook for the USD, albeit with diminishing prospects for swift rate increases in the near term, which mitigates extreme market volatility.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). CNBC's report aligns with a general view that suggests a gradual appreciation of the USD against the euro as uncertainty remains over the pace of future rate hikes.
How firms align
Goldman Sachs maintains a bullish forecast, reflecting a target of 1.12 for EUR/USD, supporting the expectations set by Barkin's comments. In contrast, BofA holds a more cautious view, projecting a lower target of 1.04, indicating skepticism regarding significant dollar strength in the immediate future.
What the data shows
Expectations for further rate hikes are echoed in recent publications, indicating that while inflation remains a concern, the adjustments to policy may not be as aggressive as previously anticipated. This nuanced approach to rate policy reinforces the current consensus on the dollar's trajectory, as highlighted in /research/fedpolicyadjustments.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Barkin's comments hint at a measured approach to rate hikes, bullish for USD.
- 02Gradual rate increases may dampen market volatility around USD strength.
- 03Watch for inflation data impacts on Fed's rate adjustment outlook.
- 04Long positions in USD against EUR favored under this stance.
Market implications
Investors should monitor inflation reports and further Fed commentary leading up to the next FOMC meeting, particularly around the 1.075 level for EUR/USD as a potential pivot point. Any shifts in expectations for rate adjustments could result in recalibrations across the FX landscape.
Risks to this view
A reversal in this bullish USD outlook could occur if inflation data suggests a sharp deceleration, leading the Fed to reconsider its stance on rate hikes. Additionally, geopolitical events or economic downturns could force a pivot to easing rather than tightening.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.60
Sources & References
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