Danske Research discusses its expectations around next week's FOMC October policy meeting.
"We expect the Federal Reserve to cut rates again by 25bp when it meets next week. While economists are evenly divided between those expecting a cut and those expecting the Fed to remain on hold, investors have nearly fully priced in a cut...It is one of the interim meetings so the Fed will not publish updated projections (hence, no new dot plot).
Focus will be on the statement and the press conference following. We do not expect major changes to the statement but it was interesting that the FOMC members discussed whether to include some forward guidance on when to expect the Fed to end rate cuts for insurance reasons. We expect the Fed to keep the sentence that it ‘will act as appropriate to sustain the expansion’, i.e. easing bias without pre-commitment," Danske projects.
"Lack of pre-commitment to send EUR/USD lower. We look for a market reaction in EUR/USD to be similar to that of the September meeting, i.e. for EUR/USD to drop as the Fed once again fails to pre-commit to additional rate cuts – the potential is probably in the area of 50 pips. However, the market was a bit more aggressively priced at that point, so the reaction should be less pronounced," Danske adds.