We expect the FOMC statement to acknowledge the weakness in recent data but to emphasise that the Committee still views the soft patch in US growth as caused at least in part by temporary factors. The statement is also likely to note that inflation has stabilised lately.
Market participants have adjusted their expectations of a first fed funds rate hike from October to December/January as data has continued to disappoint. We believe the statement will push US rates higher and data released over the coming week should also work in that direction.
We are currently awaiting the next and likely final leg of USD strength and the FOMC this week could sow the seeds for this. The FOMC will likely in itself not be enough to trigger more than a temporary blip in EUR/USD though, but could set the scene for a healthy April payrolls report to become the catalyst for a EUR/USD sell-off.
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