USD to plunge if the Fed signals smaller rate steps – Commerzbank
Markets stay relatively quiet ahead of the Federal Reserve interest rate decision. But the more important question for markets is whether the Fed might signal a downshift in the pace of hikes at subsequent meetings. Smaller rate steps will hurt the US dollar, economists at Commerzbank report.
Market has to be more interested in the scope than the timing of the USD carry
“If tomorrow’s media headlines say: ‘Fed signals smaller rate steps’ that will be USD-negative. If on the other hand, headlines say ‘Fed signals key rates will rise to 6%’ that would be USD-positive. Because in the end, the FX market has to be more interested in the scope than the timing of the USD carry.”
“As it is difficult to get the communication right, I have a feeling that the USD-negative scenario is more likely. But I am aware that probability statements are not terribly helpful for you.”