Remaining Long on the USD After Hawkish Pause by the FED
Yesterday was the most anticipated event for the week, the FOMC meeting, with expectations for another rate hike almost nil. The FED kept rates unchanged at 5.25% at the September 2023 meeting, although that didn’t send the USD lower, as markets were expecting that. Instead, the USD moved higher, resuming the larger bullish trend, while risk assets retreated, as the FED left the door open for one more hike in November/December, as well as keeping rates higher-for-longer.
EUR/USD made a sharp reversal and lost more than 100 pips as it headed toward 1.06, USD/JPY surged around one cent higher to 148.40s, while AUD/USD fell below 0.64 again. We have been long on the USD and continue to do some after yesterday’s decision. A while ago we spotted a retreat in the USD, which we used to sell EUR/USD and o long on USD/JPY
Highlights of the September 2023 FOMC Date Decision
- FED holds target rate unchanged at 5.25% – 5.5%
- 2023 end-of-year target rate: 5.6%, unchanged from June
- 2024 end-of-year target rate: 5.10% from 4.6% in June
- Economic activity has been growing steadily.
- Job gains have decelerated but remain robust; unemployment is low.
- Inflation is currently high.
- The U.S. banking system is stable and robust.
- Stricter credit conditions may impact economic activity, employment, and inflation.
- The exact impact of these conditions is still uncertain.
- The Committee is highly focused on inflation risks.
- The Committee’s goals are maximum employment and a 2% inflation rate over the long term.
- The target range for the federal funds rate is set at 5-1/4 to 5-1/2 percent.
- The Committee will evaluate further information and its implications for monetary policy.
- Factors considered for policy adjustments include the overall tightening of monetary policy, its delayed effects on the economy, and other economic and financial events.
- The Committee plans to reduce its holdings of Treasury securities and other agency debts and securities.
- The primary aim is to bring inflation back to the 2% target.
- The Committee will keep assessing the economic outlook based on incoming data.
- If risks arise that could hinder the Committee’s objectives, they are ready to modify the monetary policy stance.
- Their evaluations will consider various data, including labor market stats, inflation trends, and financial, and global events.
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