Goldman Sachs note that “the FOMC made an important policy change by modifying its policy guidance and broadening the criteria for slowing the pace of future rate hikes to more explicitly include the activity outlook. This was both natural and necessary at some point, and should mean a notable shift for how the market prices the reaction function into the autumn. The market correctly assessed this as a dovish outcome under the current circumstances, in our view. But the decision has to be viewed in conjunction with the latest wage and inflation data, which will make it difficult for the market to push too hard on the dovish narrative. Overall, we expect that the broader FOMC criteria will make for a less disruptive Dollar rally (and some relief to EM currencies after a tough couple of months), but not enough to turn the tide on the greenback. Fed tightening will still make the Dollar a hard bar to beat, especially with rising recession risks in Europe.”
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