EUR/USD may slip to 1.0800 if the Fed underlines its caution about extent of future rate cuts – Commerzbank

EUR/USD held steady below 1.0900. Economists at Commerzbank analyze how the Fed decision could impact the pair.

‘Dot plot’ is where the greatest potential for a decent Dollar movement lies

The new inflation and growth forecasts will be published, but above all the interest rate expectations of the FOMC members, the so-called ‘dot plots’. I think this is where the greatest potential for a decent Dollar movement lies, although the topic of balance sheet normalization (quantitative tightening) will certainly also take up quite some space.

The front end of the dots alone has to actually drift upwards to take into account the current, actual circumstances (that the Fed has become more cautious with regard to interest rate cuts since December). This alone could be interpreted by the market as a confirmation of its expectations and therefore positive for the Dollar, although it is only an overdue adjustment to reality.

If there are signs that the FOMC members are becoming more cautious about the timing and extent of future rate cuts, the Dollar may well gain further and EUR/USD may slip towards the 1.0800 mark.