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Analysts at TD Securities expect that 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.

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.”

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.”