MUFG Research discusses the Fed rates and EUR/USD outlook.

"We remain sceptical of the need to hike by 50bps at this stage and suspect the majority will see the better risk-reward in going by 25bps. We still have another payrolls report (but no further CPI prints, although it’s the day after) before the FOMC meeting and a strong print plus a rebound in crude oil after the recent sharp drop would be one scenario of a possible more aggressive hike. It’s a scenario that might add to the reasons for President Trump to push for a deal with Iran to reopen the Strait of Hormuz and end the conflict," MUFG notes.

"It’s still more a risk than a core view but it would alter the current balanced expectations in the markets across key central banks and shift rate hike expectations much more in favour of the dollar that would likely prompt a further lurch lower in EUR/USD and bring levels below the 1.1000-level into play," MUFG adds.

MUFG targets EUR/USD at 1.12 by year-end.