The Fed raised its policy rate by 25 basis points (bps) to the range of 4.75-5%. EUR/USD jumped to 1.09 – the highest level since the beginning of February. However, economists at Danske Bank still expect the pair to move downward over the coming months. 

A cautious 25 bps hike

“Fed hiked by 25 bps in line with our expectations but sent a dovish signal by emphasizing that Fed is ready to pause if credit conditions tighten markedly.”

“We stick to our call for a final 25 bps hike in May. We expect the Fed to maintain the policy rate at 5.00-5.25% through 2023.”

“We still see EUR/USD moving lower to 1.02 in 6M horizon. Relative rates have favoured EUR after the more hawkish ECB last week, but a prolonged rally in EUR/USD could support a renewed uptick in commodity prices and inflation expectations, and thus hinder a return to 2% inflation.”