Short covering lent some support to the US treasury market on Tuesday and yields are maintaining a slightly lower profile ahead of today’s FOMC meeting. Economists at Rabobank discuss the upcoming Fed decision.
EUR/USD at risk of dipping back to 1.0700 in the weeks ahead
While acknowledging the possibility that the Federal Reserve might delay the initiation of its rate-cutting cycle, we maintain our longstanding central forecast that the first move is probable in June. This prediction is grounded in the notion that the Fed may perceive risks as balanced between elevated inflation and the potential for a severe economic downturn if rates remain unchanged for too long.
The short covering observed in the Treasury market on Tuesday suggests speculation that the market may have overestimated the likelihood of a hawkish stance from the Fed today. Should this speculation prove accurate, profit-taking in long USD positions following the meeting is expected. Nevertheless, we anticipate a strong USD to persist for the coming months and foresee the possibility of EUR/USD retreating back to 1.0700 in the weeks ahead.
