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“The FOMC will hike 25bp in September, and a few more Fed officials should signal their comfort with four rates hikes for this year in the dot plot,” TD Securities analysts note.

Key quotes

“The 2020 and 2021 dots will continue to show a sizable majority supports hiking beyond neutral, while the median longer-run dot could drift down to 2.75% thanks to newly added participants. This then raises the odds that the statement language is modified to suggest “policy remains somewhat accommodative.” Risks should remain balanced, with Chair Powell potentially de-emphasizing some of the downside risks that have preoccupied markets of late.”

“Rates: The September hike is well priced in and the market is pricing in more than an 80% chance of a December hike and about 2 hikes next year. Given recent price action, our base case scenario for the Fed should result in a modest bull steepening reaction. Note that the market is not pricing in hikes beyond neutral, which could make it vulnerable to a bear flattener if the Fed stresses on overshooting neutral.”

“FX: We believe that the market is leaning towards a hawkish reaction, owing to recent Fed speeches and elevated positioning in the USD. While we think the Fed maintains the accommodative language and delivers a rate hike, this is mostly priced in now. That leaves a possible asymmetric response in the FX markets where the USD weakens more on a dovish take than rallies on a hawkish one. If the market takes the USD higher on that baseline, we think it offers attractive risks rewards to fade against the EUR.”