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Sep 20 - 09:55 AM

USD: September Fed Policy Update Unlikely To Change The Support For USD - MUFG

By eFXdata  —  Sep 20 - 09:05 AM

MUFG Research discusses the USD outlook around tomorrow's FOMC policy meeting. 

"Market participants have become more confident that the Fed will continue to deliver larger rate hikes heading into year end. The US rate market is now pricing in 80bps of hikes for this week’s FOMC meeting and 148bps by the November FOMC meeting. It highlights that the Fed is viewed as more likely to deliver two more consecutive 75bps hikes rather than an even larger 100bps hike this week. Market participants then expect the Fed to keep raising rates to a higher peak of closer to 4.50% next year. We expect the Fed’s updated economic projections to back up market expectations," MUFG notes. 

"At the June FOMC meeting, the central tendency ranges for the Fed funds rate for 2022 and 2023 were set 3.1% to 3.6% and 3.6% to 4.1% respectively. The updated ranges are likely to signal that the Fed plans to lift the policy rate closer to or just above 4.00% by year end and closer to or just above 4.50% in 2023. It would take the Fed’s projections more into line with market expectations. The recent hawkish repricing of Fed rate hike expectations over the past week has resulted in short-term yield spreads moving back in favour of the US which are encouraging a stronger US dollar. We do not expect the Fed policy update this week to change support for the US dollar from higher yields although it is now being offset more by policy actions from other G10 central banks that are raising rates aggressively at the same time as well," MUFG adds.

MUFG Research/Market Commentary


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