FXStreet (Delhi) – Research Team at HSBC, notes that the FOMC raised the federal funds rate by 25bp; signalled pace of hikes in 2016 would be gradual and dependant on inflation and HSBC sees the outcome as having a dovish tilt and still expect two 25bp hikes in 2016. Key Quotes “We highlight US rates, FX, emerging markets, equity strategy, and gold implications: Economics: For the first time in over nine years, the FOMC raised the target range for the federal funds rate by 25bp. Forward guidance in the policy statement was changed to indicate that the Committee expects to follow a “gradual” path for rate increases. In addition, the conditionality for rate hikes is changing: the labor market has been de-emphasized and more attention will be focused on actual and expected changes in inflation. Changes along these lines were generally expected, in our view, since they had been foreshadowed in speeches by Fed Chair Janet Yellen. The general move down in individual projected levels for the federal funds rate in each of the next three years (known as the “dots”) reinforces, in our view, the “dovish” tilt to the outcome of this policy meeting. US rates strategy: The bond market’s reaction supports the view that this was a relatively dovish hike. We maintain our near-term trading views for a 2.1-2.4% range for the 10-year Treasury, and an 85-105bp range for the two-year. Our end-2016 1.5% 10-year US Treasury yield forecast is unchanged. FX strategy: The dovish overtone to this first hike lends further credence to potential USD weakness. Gradual tightening accompanied by low core bond volatility is an important factor that supports our base case that the pace of EM currency weakness should be slower in 2016. Equity strategy: Equities may wobble as investors digest the news that the long period of near-zero interest rates has come to an end. Historically, however, prices are often higher within a year of a hike. Emerging markets: We expect EM assets to recover some of the lost ground, given attractive valuations following the Fed’s fairly smooth lift-off, though differentiation still remains paramount. Gold: Looking forward, the FOMC action leaves gold positioned to build on gains, but probably only modestly.” For more information, read our latest forex news.