The most anticipated economic event next week is undoubtedly the 17-18 September FOMC meeting, where Fed officials will decide whether to start scaling back the Fed?s USD 85bn-per-month bond-buying programme.
- We still expect the FOMC to agree on a modest tapering of its monthly purchases at next week?s highly anticipated meeting but also to provide a stronger commitment to a low fed funds rate for an extended period.
- We expect the Fed to reduce the pace of its monthly bond purchases by USD 15bn, to USD 70bn. For the sake of the housing market, tapering is likely to be skewed toward Treasuries rather than MBS.
- If our expectation that the Fed will use a fairly dovish language in its tapering announcement turns out to be accurate, market rates are likely to move lower, while it should support EUR/USD immediately after the announcement.