- Reaction to FOMC: The EUR/USD pair faced a decline following a hawkish stance from the FOMC, without an actual surprise hike.
- FOMC Projections: The projections were more hawkish, with expectations of fed funds at 5.6% by the end of this year and 5.1% by the end of 2024.
- Market Reaction: The OIS market adjusted its expectations, with the first full cut now anticipated in August 2024.
- Powell’s Remarks: Jerome Powell maintained a balanced stance, emphasizing data dependency and hinting at the possibility of a higher neutral rate, fueling market hawkishness.
- EUR/USD Outlook: Despite the prevailing USD strength, Danske anticipates potential tailwinds for EUR/USD in the coming month.
- Supportive Factors for EUR/USD:
- Peak policy rates.
- Improvement in the manufacturing sector relative to the service sector.
- Possible easing of market pessimism regarding China.
- For Traders: Traders should monitor developments closely as there might be opportunities for positioning in EUR/USD due to expected tailwinds.
- For Investors: Investors might want to gauge the short-term movements in EUR/USD, considering Danske’s outlook, while keeping an eye on unfolding macroeconomic scenarios.
Danske envisages a possible supportive environment for EUR/USD in the near term, despite a hawkish hold from the FOMC. They identify potential supportive factors like peak policy rates and improvement in the manufacturing sector, indicating opportunities for traders and investors in the forex market to strategize accordingly.