The dollar will strengthen at the meeting of the Federal Open Market Committee (FOMC) on September 20-21 and beyond, economists from HSBC forecast in a recent report. Strategists expect a hawkish hike of 75 bp at the meeting. At the same time, they expect the main currency pair EUR / USD to reach new lows from the beginning of the year in the coming weeks. Likewise, the GBP / USD exchange rate, which will most likely challenge the annual lows again in the coming weeks.
The Federal Reserve (Fed) is unlikely to enter monetary easing mode by the end of 2023.
The risk related to the upcoming parliamentary elections in Italy on September 25 does not seem to be burdensome
The fiscal cost of UK government plans to alleviate energy costs could put pressure on GBP
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Dollar exchange rate: USD continues to rise against most G10 currencies
The new ‘dot’ projections (i.e. the interest rate projections – although the projections are not a political commitment but rather reflect the personal views of policymakers) are likely to highlight how unlikely the Federal Reserve (Fed) will enter monetary easing by the end of 2023. In the experts’ opinion, this could help raise market expectations of where the peak rate might lie, while the USD will be up at the same time. In their view, the dollar’s greatest strength in the coming weeks may simply be that it is not EUR or GBP, where the risk of recession is high enough to negate any interest rate support, or JPY, where the Bank of Japan (BoJ) divergence is the dominant factor. policy. “Against this backdrop, the dollar is likely to strengthen amid lingering concerns about global growth as central banks struggle with inflation and the hawks are leading the way,” the HSBC report said.
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The euro exchange rate: A number of challenges are facing the economy of the euro area
The increase of the European Central Bank (ECB) by 75 bp and the promise of further actions did not result in a permanent increase in the EUR exchange rate at the beginning of September. While the EUR / USD parity is an anchor for the time being, strategists expect edek to hit new lows from the start of the year in the coming weeks thanks to the combination of the strength of the USD and a series of challenges facing the euro area economy (such as recession risk and heightened inflation). ). – On the positive side, the risk of the upcoming parliamentary elections in Italy on September 25 does not seem to be burdensome, while our economists note that the tone of the campaign was moderate and there was no strong Eurosceptic element. If there are threats to the euro related to political events in Italy, it seems unlikely that they will materialize this month, it added.
Pound rate: Continued downside risk for GBP
Strategists forecast that the GBP / USD rate will again challenge the annual lows in the coming weeks. Probable acceleration of the pace of tightening the Bank of England (BoE) policy in their opinion will increase fears of recession. For the upcoming meeting of the Bank of England on September 22, the market is pricing-in 80% chance for a 75bp hike, not 50bp (HSBC economists expect this smaller move), which in their opinion poses some downside risk for GBP. The fiscal cost of the UK government’s plans to alleviate energy costs could also put pressure on GBP, especially given the ongoing deterioration in the external balance, they concluded.
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