The dollar was hit hard by the Fed’s decision not to hike and the dovish tone, mostly reflected in the downgrade of forecasts.
But how far can this sell off go? The team at BNP Parias explores:
Here is their view, courtesy of eFXnews:
The Fed met BNP Paribas’ expectations for a dovish meeting, leaving policy unchanged and signalling concerns about the impact from international developments on US financial conditions and the inflation outlook.
“The accompanying projections and comments from the Chair continued to make it clear that most committee members expect to hike before the end of the year and that October remains a “live meeting†as well as December,†BNPP notes.
“With USD positioning very flat and US front-end rates priced for minimal rate hikes in the months ahead, we see limited scope for the USD to sell-off further from here,†BNPP projects.
“While continued financial market volatility and a worsening of global deflationary forces could certainly keep the Fed on hold in Q4, these same factors would also raise the prospects for further policy easing elsewhere. The ECB and BoC are prime candidates for further action,†BNPP argues.
In line with this view, BNPP maintains long USD/CAD, and USD/JPY positions.Â
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