The FOMC interest rate decision is coming, focusing on the rate hike, interest rate peaks and Fed Chairman Powell’s press conference speech.
Will the FOMC unexpectedly raise rates by 100 basis points?
At 02:00 (GMT+08:00) on Thursday, the Federal Reserve will announce its September interest rate decision. According to CME Fed observations, the market currently expects an 84.0% probability of the Fed raising interest rates by 75 basis points and a probability of 100 interest rate hikes at 16.0%. .
Up to now, the Fed has raised interest rates four times in a row in the six months from March this year, raising interest rates by 25 basis points on March 17, 50 basis points on May 5, and 75 basis points on June 16. On July 28, the interest rate was raised again by 75 basis points, raising the target interest rate range from 0-0.25% to 2.25%-2.50%.
The central bank’s interest rate decision has a huge impact on the exchange rate. This guide not only describes the reasons behind it in detail, but also gives simple and easy-to-use operation suggestions. Click to download the guide to view it immediately:
The Fed’s pace of interest rate hikes is obviously more aggressive, and it is likely to raise interest rates by 75 basis points three times in a row. In the context of U.S. inflation rising again and still at a 40-year high, the Fed’s current rate hike cycle seems to be far from an inflection point.
According to federal funds rate futures (Dec 2023 contracts), the market currently expects the Fed to maintain interest rates at around 4% until the end of 2023, and not start cutting rates until the end of 2024.
Figure 1 Fed Funds Rate Futures
Chart source: TradingView
Since the U.S. inflation in August was announced last week, the market has fully expected that the Fed will raise interest rates by 75 basis points. If the central bank raises interest rates in line with expectations, the euro/dollar has the possibility of a rebound; if the central bank unexpectedly raises interest rates by 100 basis points 1 basis point, it is likely to trigger a massive sell-off in EUR/USD.
In addition, according to the Fed’s June Economic Forecast Summary (SEP), interest rates are expected to peak at 3.6%-4.1% in 2023, and the market currently expects it to be around 4.00%. If this Economic Forecast Summary (SEP) raises interest rates significantly The peak is expected to trigger a repricing of the Fed’s rate hike path, putting pressure on EUR/USD.
EUR/USD 4-hour chart
Chart source: IG
On the 4-hour chart, EUR/USD quickly fell by more than 80 points at the European opening, continuing the downward trend since September 12. Although the relative strength indicator RSI entered the oversold area, the currency pair may still refresh again. low. The market outlook will focus on the strength of the decline. If the decline is small, the RSI bottom divergence may trigger a rebound in EUR/USD; if it falls sharply, the market outlook may still continue to short rallies.
(by Chris Li)
Follow me on Twitter for more exchanges: @ChrisLi865
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