More from Fed's Hammack: I need to keep an open mind about the next policy move
The desk interprets Cleveland Fed President Hammack's recent comments as indicative of a cautious approach to future monetary policy, reflecting rising concerns about entrenched inflation expectations among businesses. Per the full note source, Hammack's emphasis on keeping an open mind suggests that the Fed may not be as aggressive in its tightening cycle as previously anticipated. This aligns with broader market sentiment that is increasingly wary of inflation's persistence, which could influence currency valuations. With the current consensus target for EUR/USD at 1.075, traders should remain vigilant as new data emerges.
What the desk is arguing
The desk frames Hammack's remarks as a signal of potential dovishness from the Fed, highlighting the uncertainty surrounding inflation expectations. His acknowledgment of businesses' concerns about an entrenched inflationary mindset suggests that the Fed may reconsider its policy trajectory in light of evolving economic conditions.
Supporting this view, recent inflation data has shown resilience, with the core PCE index rising 4.2% year-over-year as of the latest report, indicating that inflation pressures remain significant. This backdrop could lead to a more cautious Fed, impacting the USD's strength against other currencies.
Where it sits in our coverage
Our consensus target for EUR/USD is set at 1.075, with a range between 1.04 and 1.12. Key firms contributing to this consensus include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which anticipates a stronger EUR, while bofa holds a more bearish outlook, suggesting divergence in expectations regarding the Fed's policy stance and its impact on the USD.
How other firms see it
Firms aligned with a more dovish Fed outlook include jpmorgan and citi, both anticipating a weaker USD in the near term. Conversely, bofa and goldman maintain a more hawkish stance, expecting continued strength in the USD due to persistent inflation pressures.
Traders should also monitor the USD/JPY pair, as it is likely to reflect the Fed's policy adjustments, alongside the implications of the upcoming FOMC meeting, which could further clarify the Fed's stance on inflation.
What the calendar says
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