Fed target rate is likely to be left unchanged today, while the statement should continue to point to further gradual rate hikes. When the Fed does raise its target rate by another 25bp, most probably in December, it will most likely lift the interest on excess reserves by less than 25bp in order to push the effective fed funds rate back to the middle of the target band; the same approach it used in June. There is an outside risk that the Fed will deal with this issue already at this week’s meeting by cutting the interest on excess reserves by 5bp to 10bp. However, we think that such a move is extremely unlikely as the Fed does not want to send the wrong signal about easing the policy stance. In addition, the committee will use the meeting to discuss the target size and composition of its balance sheet.

EUR/USD has seen some support from the result of Tuesday’s US midterm elections, closing around 0.3% up on the day. We do not expect an immediate change in US trade policies or an infrastructure program as a result of the Democrats winning the House. With the US trade tensions likely to dominate the medium-term picture, and following the recent deterioration of eurozone PMIs, we think a convincing rebound in sentiment surveys would probably be needed for EUR/USD to stage a significant recovery.

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