The Fed held interest rates steady, but these officials see more hikes coming soon
The Federal Reserve maintained its current interest rate, yet comments from Dallas Fed's Lorie Logan suggest that market participants should prepare for at least 50 basis points of additional rate hikes. This stance reinforces the bullish outlook for the USD as it indicates a stronger commitment to tightening monetary policy than previously anticipated. The implications for the market are profound, likely challenging currently priced expectations of an imminent easing cycle and suggesting a recalibration may be necessary.
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). Marketwatch's insights seem aligned with firms anticipating more aggressive Fed actions, particularly those in the upper range of expectations.
How firms align
JPMorgan supports the notion of potential rate hikes, setting its EUR/USD target at 1.10, suggesting alignment with the Fed's hawkish tone expressed by Logan. Conversely, BofA's lower target of 1.04 indicates a more cautious stance, positioning it as contrary to the prevailing bullish sentiment triggered by recent Fed communications.
What the data shows
Recent revisions suggest an upward adjustment in USD expectations as the Fed's hawkish narrative continues to gain traction. For further insights, refer to our analysis at /research/ushadowpolicy.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Logan's comments push back against market expectations for rate cuts, potentially bolstering the USD further.
- 02Traders should monitor the recalibration of EUR/USD levels post-Fed guidance.
- 03The upcoming employment data could serve as a catalyst for USD appreciation if it supports continued Fed tightening.
Market implications
Next, watch for the EUR/USD to test resistance at 1.085 as traders adjust positions post-Fed statements. With our consensus number at 1.075, volatility could heighten around macroeconomic data releases that align with this hawkish narrative.
Risks to this view
This bullish view on the USD could be invalidated by weaker-than-expected inflation or employment figures, prompting a reassessment of the Fed's tightening trajectory. Notably, a significant drop in wage growth data could trigger immediate USD weakness.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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