EUR/USD to move lower in 2023 as Fed to push rates above 5% next year – Danske Bank

The US Federal Reserve hiked the Fed Funds Rate by 50 bps as widely anticipated. The updated ‘dots’ signal policy rates above 5% in 2023.  EUR/USD recovered near pre-meeting levels despite the hawkish rate projections. But economists at Danske Bank expect the pair to tick down next year.

FOMC signals Fed Funds above 5% in 2023

“We maintain our call for terminal rate at 5.00-5.25%, well in line with the new projections.”

“While Powell noted that Fed looks through short-term volatility in financial conditions, we think the recent easing supports the case for inflation risks still being tilted to the upside.” 

“We continue to see modest near-term upside risks to USD rates, and forecast EUR/USD moving lower in 2023, as broad USD strength plays a key role in maintaining financial conditions restrictive.”