USD: Another 75bps hike on Wed; Risk of USD stronger for longer - BofA

Bank of America Global Research discusses its expectations for this week's FOMC policy decision on Wednesday.

"We expect the Fed to raise its policy rate by 75bp in September to 3.0-3.25% and project the target range for the federal funds rate to reach 3.75-4.0% by year-end. This would be 50bp higher than in June. We also look for the median member to project one additional 25bp hike in 2023, bringing the new terminal rate to 4.0-4.25%.

In the updated FOMC statement, we think the Fed will likely be clear that monetary policy will be moving into restrictive territory. In addition, we think the Fed will want to send the signal that a restrictive policy stance will be needed "for some time" in order to guard against market expectations of a quick pivot to rate cuts once inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term has begun to move lower," BofA notes.

"With markets now generally looking for 75bp from the Fed, such a rate hike would likely by itself may be less directly impactful for the dollar, although of course the additional messaging will be crucial. For FX, the risks are ultimately that the USD can remain strong for longer and could even get stronger," BofA adds.

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