EUR/USD moves beyond the monthly range as the Fed keeps rates on hold.
The Relative Strength Index (RSI) points to a deeper decline as the oscillator reverses ahead of trendline resistance to keeping the bearish bias from late July
EUR/USD fails to hold gains after the European Central Bank (ECB) meeting hitting a monthly low (1.1737) as the Fed’s Summary of Economic Projections (SEP) shows no change to the interest rate path reflected on the dot plot.
The market’s reaction points to expectations of a more dovish forward guidance as the the Fed shifts its framework to allowing inflation to overshoot over time. The Fed is not in any rush to change policy evidenced by the fact that longer run interest rate forecast remains unchanged from the June meeting.
The Fed looks set to rely on its current tools to support the US economy, pledging to “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace,” .
The Fed could continue with the same script at the next interest rate decision on November 5 particularly as forecasts have been revised upwards.
The Fed could of course adjust forward guidance over the coming months, given that they stand prepared to adjust policy according to the risks. That said, the current wait-and-see approach may keep current market trends in place as the Fed’s balance sheet expands back above $7 trillion in August.