INVESTINGLIVEGiuseppe Dellamotta
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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
The desk interprets Fed Governor Collins' recent comments as indicative of a potential shift towards interest rate cuts, albeit with caution due to rising inflation risks. Per the full note source, Collins emphasized a cutting bias while acknowledging that rates may remain on hold longer than previously expected. This nuanced stance suggests a growing divergence among Fed officials, especially with non-voting members like Collins expressing a more neutral outlook. The desk sees this as a precursor to a broader pivot in monetary policy, contingent on geopolitical developments and economic data.
The desk posits that Governor Collins' remarks signal an emerging consensus among Fed officials regarding the potential for future interest rate cuts. This perspective is underscored by her acknowledgment of increased inflation risks, which complicates the Fed's decision-making process. Per the full note source, Collins' comments reflect a cautious optimism about easing, while also indicating a readiness to respond to adverse economic conditions.
Supporting this view, Collins noted that rates are likely to remain on hold for an extended period, suggesting that the Fed is weighing its options carefully. The mention of alternative scenarios that could prompt a rate hike indicates that the Fed is not entirely committed to easing, but rather is adopting a more flexible approach based on incoming data.
Our consensus target for the USD/EUR pair is 1.075, with a range from 1.04 to 1.12. Notable firms contributing to this consensus include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which supports a more dovish outlook, while bofa presents a contrary stance, advocating for a more cautious approach. The desk's call is positioned at the upper end of the consensus range, reflecting a more optimistic outlook on potential rate cuts.
Firms like jpmorgan and citi are aligned with the desk's interpretation, anticipating a gradual easing of monetary policy as inflationary pressures stabilize. Conversely, bofa and goldman maintain a more hawkish stance, suggesting that the Fed may need to raise rates if inflation continues to surprise to the upside.
Key currency pairs to watch include USD/JPY, which may react to shifts in Fed policy, and EUR/USD, as it reflects the broader sentiment on European monetary policy amid these developments.
Key takeaways
Market implications
Traders should monitor the USD/EUR pair closely, particularly as it approaches the 1.075 level, which may act as a psychological barrier. Additionally, upcoming economic data releases could provide further clarity on the Fed's trajectory, influencing market positioning ahead of any potential rate adjustments.
I preferred to adjust wording that signals cutting bias I still expect rate cuts down the road Rates will likely remain on hold for a longer period The odds of worse inflation scenario have increased Alternative scenario could make the Fed consider a hike Fed's Collins is not a voter this year, so we haven't got the chance to see her dissent regarding the easing bias in the statement like Hammack, Kashkari and Logan. This shows though that there are more policymakers that have now turned more neutral and don't want to have an easing bias. Such small steps generally precede a pivot in monetary policy but a lot will depend on US-Iran war and economic data.
This article was written by Giuseppe Dellamotta at investinglive.com.
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