The Fed can continue tightening its monetary policy through Quantitative Tightening (QT). Danske Bank economists analyze its implications for the EUR/USD pair.
Fed likely to continue QT well into 2024
Given that bank reserves remain at healthy levels, Fed likely to continue QT well into 2024.
Ongoing QT will weigh on bank reserves over timebut for now, the drain on the Fed’s overnight repo facility (ON RRP) as well as liquidity support from the Banks Term Financing Program (BTFP) means that Tightening liquidity conditions will not be high on the list of concerns for markets in the near term. If anything, the June move was a modest positive surprise, evident in the tightening of the OIS EUR/USD basis.
Abundant USD liquidity, all things being equal, is likely to be supportive of spot EUR/USD as well, but we still believe the cross will decline towards the second half after slower global growth and a relatively better performing economy US.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
