The Federal Reserve raised the policy rate by 25 basis points to the range of 4.5-4.75% as expected. The US Dollar came under heavy selling pressure but economists at Danske Bank still expect a lower EUR/USD as the base case remains for Fed to hike rates to 5% by May.

Powell sees a higher chance of a soft landing

“Fed hiked rates by 25 bps as widely expected. Powell saw probability of soft landing increasing, as inflation has eased without the economy slowing markedly. “

“The persistently tight labour and the turnaround in global manufacturing cycle leave Fed little room to turn more dovish. We still expect 2x25 bps hikes in the March and May meetings.” 

“Markets reacted dovishly, with USD selling off and UST yields falling. We stick to our forecast of lower EUR/USD at 1.07 in 3M.”