Fed to skip October but raise rates again in December, nearly all economists say
The latest consensus from economists suggests that the Federal Reserve will maintain the current interest rate during October but is expected to implement another rate hike in December. This anticipated decision underscores heightened uncertainty regarding the terminal rate, likely keeping USD funding rates elevated as the year-end approaches. Such a trajectory is expected to pressure carry-sensitive currency pairs given the current market dynamics surrounding risk appetite and liquidity forecasts.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075, which is the median across eight firms. The most bullish outlook comes from JPMorgan at 1.10, while BofA takes a more cautious stance at 1.04. This reflects differing perceptions of the Fed's policy trajectory and its impact on the dollar.
How firms align
JPMorgan aligns with the headline's view, supporting the expectation of a December hike with a target of 1.10 for EUR/USD. Conversely, BofA appears to be at odds with the consensus, positioning at 1.04, emphasizing potential economic headwinds that might hinder further rate increases. Their contrasting positions highlight the uncertainty in market forecasts.
What the data shows
Recent research reflects a trend towards a stronger dollar influenced by anticipated Fed actions. Our internal analyses correlate with findings that suggest significant rate changes will bolster the USD into year-end, as detailed in our latest Insight on monetary policy impacts at /research/fx_rate_trends.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01USD expected to strengthen; watch levels around 1.075 for EUR/USD.
- 02A December rate hike is looming; position accordingly in carry trades.
- 03Risk exists if inflation data diverges from Fed expectations ahead of December.
- 04Market sentiment remains bullish on USD amid tightening conditions.
Market implications
Next, traders should closely monitor the EUR/USD around the key level of 1.075, with focus on upcoming economic data releases, particularly inflation reports. Any significant volatility could further impact the expected trajectory leading up to December.
Risks to this view
This bullish USD view could be invalidated by unexpected softening in inflation indicators or adverse economic data, which might prompt the Fed to reconsider its stance on rate hikes.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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