Dovish Fed signal, EUR/USD at 1.15 short-term – Danske Bank

The Fed announcement to support the economy sent equities higher and the USD weaker, following a declining path against most currencies. Analysts at Danske Bank expect the EUR/USD pair at 1.15 in the near-term while SEK and NOK should strengthen amid this economic outlook.

Key quotes

“The Fed kept both the target range and forward guidance unchanged. According to the ‘dots’, the Fed does not expect to raise rates through 2022, which is in line with current market pricing.”

“According to the ‘dots’, the Fed does not expect to raise rates through 2022, which is in line with current market pricing. Fed Chair Powell said at the Q&A that the Fed is ‘not even thinking about thinking about raising rates’ despite some early positive signs that the economy has bottomed out and the healing has started.”

“The Fed said it will keep its QE buying ‘at least at current pace’. This means the Fed will continue to buy around $80 billion of Treasuries and $45 billion of mortgage-backed securities per month. This is another signal that the Fed is not close to exit its easy policy stance.”

“A very interesting thing, which is likely to become a market theme, was that Fed chair Powell said that it is ‘an open question’ whether the Fed will implement so-called yield curve control and something the FOMC will discuss at coming meetings.”

“Scandinavian SEK and NOK should be able to strengthen further in this environment while we see EUR/USD rising to 1.15 near-term.”