Today, the Federal Reserve is widely expected to raise its policy rate by 75 basis points (bps). Anything shy of that outcome would be a massive USD negative, economists at Credit Suisse report.

The more reasons the Fed states as possible reasons to slow rate hikes, the worse that is for USD

“The market is already fully expecting a 75 bps rate, so anything shy of that outcome would be a massive USD negative.” 

“Even if it delivers 75 bps, the more variables the Fed puts on the table as worthy of concern (e.g., international conditions) and the more reasons the Fed states as possible reasons to slow rate hikes, the worse that is for the greenback. In the extreme case, we can see this leading to a fresh test of October EUR/USD highs near 1.0100, though we would anticipate the move to peter out given the imminent data risk linked to Friday’s Oct employment data. ”

“A USD-positive FOMC surprise would require the Fed to send a message that it is entirely focused on taming current high inflation and sees no benefit in slowing its hiking pace yet. Under this scenario, we can imagine EUR/USD targeting 0.9750 at a stretch, with downside beyond that held in check by the proximity of the Oct employment data on Friday.”

See – Fed Preview: Forecasts from 13 major banks, the last big hike for now?