After delivering a widely expected 75 bps hike for the fourth time in a row, Fed Chair Powell stressed the likely need for more rate rises even if the pace slows. Economists at HSBC think the mix of elements – higher peak rates and pushback on a pause – favours an extension higher in the USD rally.
“The momentum in drivers of the USD bullish trend since mid-2021 (i.e. higher Fed peak rate expectations, slowing global growth and risk aversion) are clearly waning. However, it is not yet at the turning point. So, while it is appropriate to look for the peak in the USD, we are likely not quite there yet.”
“The Fed has delivered the fourth 75 bps hike in this cycle and has signalled there is still work to be done. The data will determine just how much more work that is.”
“We expect two more rate hikes in December 2022 and February 2023, each of 50 bps, up to a peak federal funds target range of 4.75-5.00%, and note that the risks remain skewed towards higher rather than lower policy rates, as US core inflation will likely remain elevated well into next year. We also do not expect any rate cuts to be delivered in 2023 or 2024.”
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