FOMC preview - markets expecting a dovish shift in dot plot
In this evening's FOMC meeting conclusion, there is a widespread consensus that monetary policy will remain unchanged. As such, the focus is clearly on the dot plot which will be updated this evening. The dot plot is the collection of individual policymaker projections on interest rates, and at the Dec meeting, this revealed expectations of 2 hikes through 2019. This is expected to be revised lower, with consensus spread between just one hike and no hikes through this year.
On this result, we may well see some USD weakening, though the market has pre-empted this to some degree and we have seen some of the key spot rates pushing to new extremes, led by EUR/USD which has been testing resistance at 1.1360-65.
USD/JPY has been relatively quiet in the mid-low 111.00's, though this is on the basis that the softer Fed line - which is largely priced into the rates market - will be positive for stock markets.
The Fed may also reveal some details on QT - quantitative tapering - having already noted that it expects to stop the cap on reinvestments at some point this year. An early signal of this would be stock market positive and also weigh on the USD as this effectively keeps the supply of USDs unchanged in the market.
As such, traders will be looking at a number of inclusions in the communication tonight, with the press conference later on also likely to throw up clues on the policy stance going forward.
Nb, the Fed decision will be released at 18.00GMT, an hour earlier due to the US time change, with the press conference starting at 18.30GMT.