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EUR/USD reference rates at publication:

Spot: 1.1585High street bank rates (indicative band): 1.1180-1.1261Payment specialist rates (indicative band): 1.1480-1.1527Find out about specialist rates, hereOr, set up an exchange rate alert, hereUnder a 'bearish' scenario the Euro to Dollar exchange rate (EUR/USD) could succumb to fresh 2021 lows in the wake of the Federal Reserve policy update, according to analysis released ahead of the central bank's November policy update.

EXANTE - a financial services company with ten offices in Europe and Asia - says there are three likely outcomes to the Fed decision that could impact on how the Euro trades against the Dollar over coming days and weeks.

Victor Argonov, senior analyst at EXANTE walks us through these possible outcomes:

1) A $20-$30BN per month taper to quantitative easing is announced

Anything north of $15 billion would be deemed hawkish, especially if it is around the upper end of the range of analyst expectation i.e. circa $30 billion.

A larger reduction in QE would probably lead to further hawkish market bets as it would bring forward expectations for the start of rate rises. In this scenario, we should see a big rally for the dollar, especially against the euro, given the ECB’s dovish stance.

The EUR/USD could easily break 1.1500 and make a move towards 1.1000 in the days ahead. We would imagine US bond yields would spike and this in turn would weigh heavily on gold, sending the precious metal back down to $1700.

Technology stocks, which carry lower yields, could also come under pressure as some yield-seeking investors find better value in fixed income provided by government debt than overvalued equities.

Above: Euro-Dollar weekly chart.

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2) The status quo is maintained / or a marginal taper is announced

Conversely, if the Fed refuses to taper QE, or does so by only $5 to $10 billion per month, this would come as major surprise and probably cause the dollar to slump and trigger a relief rally for gold and silver.

The yellow metal would likely reach for $1900 in the next few days. Watch out for a big rally in commodity dollars and emerging market currencies. Stock markets should also remain buoyant as such a decision would keep the goldilocks scenario more or less intact.

3) Fed tapers by $15BN per month

If the Fed meets expectations and tapers QE by $15 billion per month, the reaction of the markets will not be straight forward.

This outcome should be mostly priced in, although some investors are undoubtedly waiting for some sort of confirmation.

Thus, it is likely we may see an initial spike in the dollar — and yields — if the FOMC confirms market expectations by tapering its asset purchases programme by $15 billion.

Whether that potential spike would then turn into a full-on rally, or gets immediately sold, would depend on the Fed’s wider views on inflation and the economy, and in turn, on interest rates outlook.

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We will have to rely on the words the Fed will use in its policy statement and the remarks chairman Jerome Powell will make at the press conference, as the dot plots will not be updated until the next meeting in December.

Overall, we feel the Fed will once again insist that the end of tapering, likely to be at some point in the middle of 2022, will not necessarily mean rates will have to rise thereafter.

The market is currently pricing in two rate hikes, with the first to come in June.

Whether or not the Fed shed some light on the potential lift off time remains to be seen. But we may get a better idea on 15 December, when FOMC’s projections are released.