USD to weaken if Fed still awaits to hike rates until 2023 – ING

Markets had previously seen the FOMC September meeting as the chance for Chair Jerome Powell to formally announce tapering. Softer inflation and a disappointing jobs report will likely deter Fed Chair Jerome Powell and colleagues from announcing tapering. However, Powell could signal a move coming later this year, in the opinion of economists at ING.

Too early to move, but set to turn a notch more hawkish

“After weak jobs data and a slight decrease in inflation in August, we expect to see no changes in the Fed’s policy stance this week. Still, we think there will be a certain degree of acknowledgement that the current level of monetary accommodation may no longer be warranted and that asset purchases may start to be unwound by year-end. Such a tone on tapering may not generate much surprise in the market.” 

“Markets may be sensitive to any signals about the timing of monetary tightening. It is quite a close call, but we do not expect the Median Dot Plot for the first rate hike to shift from 2023 to 2022. That would ultimately underpin Powell’s recent rhetoric around the de-linking of tapering and tightening, and keep rate expectations capped. In FX, this should translate into a weaker dollar after the FOMC announcement, with pro-cyclical currencies reaping most benefits.”