A gap is increasingly emerging between the Fed’s outlook and market expectations. A sustained decline of inflation will justify only temporary setbacks in EUR/USD, economists at Commerzbank report.
“The Fed signaled that it is likely to adjust its rate outlook (the dots) to the upside at next week’s meeting and seemed anxious to invalidate market expectations for rate cuts next year.”
“The discrepancy between Fed and market expectations might widen further though, which also results in the potential for a temporary Dollar rally if new information were to cause the market to align itself more with the Fed’s outlook.”
“As we assume that inflation will now ease significantly and on a sustainable basis this is likely to justify only temporary setbacks in EUR/USD.”