Fed's Waller plans to support at least a quarter-point rate hike in December
Federal Reserve Governor Christopher Waller signaled his intention to back a minimum quarter-point rate hike in December, emphasizing a steadfast approach in monetary policy amidst persistent inflation. This statement underscores the Fed's ongoing commitment to tightening measures as a means to curb inflationary pressures, a sentiment that is likely to bolster USD in the near term. As markets price in this expectation, the focus will shift towards upcoming economic data releases to gauge further rate hike trajectories leading into the end of the fiscal year.
Where it sits in our coverage
Our consensus EUR/USD target currently sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The current sentiment from Waller aligns closely with the more hawkish views represented by firms like JPMorgan and ING, which suggest potential further upside for the dollar in the coming weeks.
How firms align
JPMorgan has indicated a target of 1.10, reinforcing the notion that the dollar may gain strength if rate expectations solidify post-decision. Meanwhile, BofA holds a more cautious stance with a target of 1.04, suggesting skepticism regarding aggressive rate hikes, as articulated in our internal /reports/bofa page.
What the data shows
Recent forecasts highlight a potential shift in market sentiment, with investors adjusting positioning in light of the Fed's confidence in rate hikes. For further insights, see our coverage on the projected impacts leading up to December at /research/december-hike-impact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Waller's support for a December rate hike supports a bullish outlook for USD.
- 02Traders should monitor rate hike signals amidst economic data releases.
- 03Potential resistance in EUR/USD at levels near 1.075 as rate expectations play out.
Market implications
Traders should keep a close eye on the upcoming employment data on Friday—any signs of wage inflation could amplify expectations of aggressive Fed tightening. Our consensus level of 1.075 may serve as a critical threshold for EUR/USD traders.
Risks to this view
A reversal could occur if upcoming inflation data underperforms or if geopolitical uncertainties escalate, prompting shifts in the Fed's outlook. A significant deviation from the Fed's inflation target could warrant a reassessment of tightening timelines.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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