Fed could change forecasts

The Fed is not expected to alter interest rates at its meeting but there is a chance it could revise its quarterly forecasts and accompanying statement. This could change the outlook for interest rates and therefore the US Dollar (USD) valuation. 

EUR/USD could see volatility after the Fed meeting. Speculation is mounting that the Federal Reserve will revise its economic forecasts in the Summary of Economic Projections (SEP), and the “dot plot”, which reflects the Board of Governors of the Fed’s consensus of the future path of rates. 

In the previous SEP, officials forecast three 25 basis points (0.25%) rate cuts in 2024 but some analysts now think there is a material risk that this could be revised down to two 25 bps cuts to reflect inflationary pressures remaining elevated. 

“The summary of economic projections will be updated and contains hawkish risks in our assessment with the committee potentially projecting fewer cuts in 2024,” says David Doyle, head of economics at Macquarie, in a note about the Fed meeting. 

ECB speakers set to take the stand

In Europe, a similar debate is going on about when to begin cutting interest rates, with two camps emerging – those who favor waiting until the European Central Bank’s June meeting to decide (the official camp) and a smaller mutineering group who want to keep alive the possibility of an early spring rate cut. 

On Tuesday, Vice-President of the European Central Bank (ECB), Luis de Guindos, maintained allegiance with the June camp after he said “we have to wait,” because “services inflation” remains too high. 

Wednesday will see a host of ECB talking heads appear in public who could provide further intelligence on which way the ECB is swinging. This may also impact EUR/USD volatility. 

The ECB President Christine Lagarde, ECB Chief Economist Philip Lane and ECB Executive Board member Isabel Schnabel are all set to speak at an "ECB and its Watchers" conference today, with Lagarde kicking off at 8.45 GMT, Lane at 9.30 and Schnabel at 13:45. 

Later, the President of the Bundesbank, Joachim Nagel, is scheduled to take the podium at a  “Future of European Finance" conference at the ASKO Europa-Stiftung Foundation