Dollar Lower As Markets Await FOMC And SNB

The dollar is mildly lower as markets await the highly anticipated FOMC rate decision today. As of yesterday, Fed fund futures pointed to 23% chance of a hike to 0.50% in this meeting and 39% chance in October. US stocks ended higher with DJIA extending this week's rebound by adding 140.10 pts, or 0.84% to close at 16739.95. S&P 500 also added 17.22 pts, or 0.87% to close at 1995.31, as it's heading back to 2000 handle. Asian equities followed and are trading generally higher. US treasury yield extended recent rise too with 2 year yield closing at a fresh four year high at 0.811%, comparing with Tuesday's close of 0.798%. 10 year yield also rose to close at 2.303%. In other markets, Gold recovered strongly this week and is back pressing 1120 handle. Crude oil also recovered and is back above 47 at the time of writing.

We expect the Fed to keep its powder dry, leaving the Fed funds rate unchanged at 0.25%, this month. Although macroeconomic developments have improved with solid economic growth and declining unemployment rate, volatility in global financial markets was high in mid-August and concerns over slowdown in China and other emerging markets would defer Fed's rate hike schedule. We expect the Fed to maintain the policy rate unchanged in September, but Chair Janet Yellen should indicate at the press conference that a hike might come in October or December this year. More in FOMC To Signal Rate Hike In 4Q15.

There are certain scenarios that could play out today. The greenback would mostly likely be give a boost if Fed surprises the markets by a rate hike. Meanwhile, the impact on dollar might not be totally bearish even if Fed is on hold. The key is whether Yellen would signal the chance to raise interest rate in October, for example, by announcing an extra post meeting press conference in that month.

Another main focus today is the quarterly SNB rate decision. The central bank is widely expected to keep interest rates unchanged today. Attention will be on any revision to the economic outlook. Growth for 2015 could be revised up due to better than expected H1 performance. However, the global finance markets were under turmoil since late June and inflation expectation could be revised downwards due to currency depreciations in emerging markets and due to fall in energy prices. So, overall, the tone of today's statement could turn out to be more dovish than expected.

Elsewhere, New Zealand GDP rose 0.4% qoq in Q2, below expectation of 0.6% qoq. Japan trade deficit narrowed to JPY -0.36T in August. UK will release retail sales today. US will release housing starts and building permits, jobless claims and Philly Fed survey.