The Federal Reserve hiked the target range by 75 bps to 1.50-1.75%. Economists at Danske Bank still expect EUR/USD to move to parity in 12 months.Big rate hikes until inflation pressure eases
“Fed Chair Jerome Powell mentioned that the Fed can hike by another 75 bps in July but that we should not expect a series of 75 bps rate hikes. This sounds very similar to the May meeting when Powell mentioned that the committee was not ‘actively considering’ 75 bps. As long as inflation remains high, the Fed is forced to deliver.”
“We change our Fed call now expecting the Fed to hike by 75 bps in July and 50 bps in September, November and December. If we are right, the Fed funds target range would be 3.75-4.00% by year-end (vs. Fed dot of 3.375% and market pricing of 3.5%).”
“We still see risks skewed towards faster and more tightening given the inflation outlook. Our base case is that the US falls into a recession in Q2 23 but the faster hiking pace increases the risk that it starts earlier.” “We see inflation prints as remaining high amid a cyclical slowdown. If data confirms this, then we also expect Fed to underpin our forecast for seeing EUR/USD towards parity in 12M..”
“We see upside risks to our UST 10yr yield target of 3.50% in 3-6M.”
GBP/USD remains pressured around 1.2150 ahead of BOE
GBP/USD remains under pressure at around 1.2150 in early European trading, as the US dollar licks its Fed-induced wounds amid a tepid risk tone. Investors brace for the BOE interest rate decision, with a 25 bps hike priced in.
GBP/USD News
EUR/USD drops below 1.0450 as US dollar recovers
EUR/USD is dropping below 1.0450 as the US dollar is attempting a rebound amid a souring market mood. The Fed-driven market cheer fades, although steep losses in the longer-dated Treasury yields could cushion the pair’s downside. Eurozone final inflation eyed.
EUR/USD News
Gold: Bulls face exhaustion at 200 DMA, what’s next?
Gold Price has entered a phase of consolidation so far this Thursday, following an impressive turnaround fuelled by Wednesday’s Fed decision. Fed’s resolve to fight inflation head-on helps lift the market mood. The USD struggles to find demand amid weaker yields.
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