Economists at TD Securities discuss the Federal Reserve interest rate decision and its implications for EUR/USD and USD/JPY.

Hawkish (10%)

“Fed hikes rates by 75 bps and suggests that the economy remains too strong while inflation remains stubbornly elevated. Powell explicitly suggests that another 75 bps rate hike in December is possible as inflation remains stubbornly high. EUR/USD support ~0.9750. USD/JPY 150+ but risk of intervention.”

Base Case (65%)

“Fed hikes rates by 75 bps and statement shows no hint of deceleration given stubborn inflation data and strong labor market. Powell suggests that hikes may not continue at their present pace. However, he will reiterate that inflation remains too high and therefore the Fed needs to continue to raise rates for the foreseeable future. EUR/USD at 1.00, USD/JPY at 146.”

Dovish (25%)

“Statement highlights softening in economic data and improvement in consumer inflation expectations. Hints that front-loading may be finished despite the need to tighten further. Powell suggests that another 75 bps hike in December may not be necessary due to significant front-loading that has already taken place. Suggests that Fed is nearing policy peak and that inflation should begin to moderate relatively soon. EUR/USD at 1.01, USD/JPY at 145.”

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