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Jan 31 - 12:55 AM

Danske: Anticipating a Slightly Lower EUR/USD Around Tomorrow's FOMC Meeting

By eFXdata  —  Jan 30 - 04:30 PM

Synopsis:

Danske provides insights into the potential outcomes of the upcoming Federal Reserve's FOMC meeting and its implications for EUR/USD currency pair.

Key Points:

  1. Fed's Policy Status:

    • The Federal Reserve is expected to keep its monetary policy unchanged at the January meeting, with the first rate cut anticipated in March, followed by a total of four cuts throughout 2024.
  2. Dual Mandate Balance:

    • The Fed currently balances two objectives: managing cooling inflation, which justifies a move towards a neutral rate, and maintaining solid economic growth and labor markets, which supports a gradual approach to policy changes.
  3. Focus on Quantitative Tightening (QT):

    • The Fed is also shifting attention towards adjusting the endgame for its QT process, expected to continue at least until the end of the year.
  4. Impact on EUR/USD:

    • Given these factors, Danske predicts risks are leaning towards slightly higher yields in the U.S. and a corresponding decrease in the value of EUR/USD around the time of the FOMC meeting.

Conclusion:

Danske anticipates the upcoming FOMC meeting to maintain the status quo in terms of monetary policy, but with a gradual approach towards easing. This scenario is likely to result in a slight dip in EUR/USD, influenced by marginally higher U.S. yields and market reactions to the Fed's policy direction.

Source:
Danske Research/Market Commentary

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