Fed: Three scenarios and the implications for EUR/USD and USD/JPY — TDS

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TD Securities economists analyze The Federal Reserve’s interest rate decision and its implications for the EUR/USD and the USD/JPY.

Aggressive line (10%)

“The Fed raises rates by 75 basis points and suggests that the economy remains too strong while inflation remains stubbornly high. Powell explicitly suggests that another 75 basis point rate hike is possible in December as inflation remains stubbornly high. stubbornly high EUR/USD support ~0.9750 USD/JPY 150+ but intervention risk.”

Base case (65%)

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“The Fed raises rates by 75 basis points and the statement shows no signs of slowing given the stubborn inflation data and the strong labor market. Powell suggests that the hikes may not continue at the current pace. However, he will reiterate that inflation is still too high and therefore the Fed should keep raising rates in the near future. EUR/USD at 1.00, USD/JPY at 146.”

Moderate (25%)

“The statement highlights softening in economic data and improving consumer inflation expectations. It hints that front-loading may be over despite the need for further tightening. Powell suggests another 75 basis point hike in December may not be necessary due to the significant front-loading that has already taken place.Suggests the Fed is nearing its maximum policy level and inflation should start to moderate relatively soon.EUR/USD at 1.01, USD/JPY at 145”.

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Source: Fx Street

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