EUR/USD Long In Profit After FOMC Meeting

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EUR/USD: long at 1.1320, take profit at 1.1570

GBP/USD: await signal

USD/CAD: await signal

Fed raised rates and lowered dots, as expected

The Federal Reserve has raised the fed funds target rate by another 25bp to a range of 2.25%-2.50%. The Committee, however, sounded more cautious about the outlook and pledged to “monitor global economic and financial developments”. The FOMC members’ median interest rate projections now only show two hikes for 2019 (down from three), while the estimate for the longer run natural rate was lowered to 2.75 from 3.00%.

Despite tighter financial conditions and growing political pressure, the Federal Reserve today delivered a unanimous 25bp rate hike. With this move, the Fed has lifted its target rate four times this year, for a total of 100bp. That is the largest annual increase in short-term rates since 2006. Strong economic growth, a falling jobless rate and inflation rates close to the 2% target allowed the Fed to gradually normalize its policy stance. It is important to remember, however, that even after those rate hikes, the target rate remains below most estimates for the equilibrium rate. In other words, the policy stance has remained accommodative.

The post-meeting statement contained only a few changes. But those that were made send the clear message that the FOMC’s confidence in the medium-term outlook has been rattled. First, it is now the Committees “judgment” rather than its “expectation” that “some further gradual increases in the target range for the federal funds rate will be consistent with” meeting the dual mandate. Second, it is now the Committee’s judgment that risks to the outlook are “roughly balanced”. Moreover, the statement qualified the balanced-risk assessment by adding that the Committee will “monitor global economic and financial developments and assess their implications for the economic outlook.”

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