Kit Juckes, Research Analyst at Societe Generale, suggests that the US FOMC announcement at 6pm GMT may keep markets relatively subdued today. Key Quotes “January’s market sell-off means that only 4 of the 98 (brave) respondents to the Bloomberg survey look for a hike today, but while a lower Fed Funds ‘dot-plot’ is also expected, most expect the new median dot-path to be above what is priced into the OIS curve as the FOMC is less downbeat about the global environment and references the tightening labour market and slow build-up of inflationary pressures. All of which should be dollar-friendly as long as a mildly, hawkish sentiment doesn’t send global risk sentiment into a tailspin (which it really shouldn’t!) Long before we get to the FOMC announcement, the US releases housing starts, building permits and CPI data as well as industrial production and capacity utilisation, all for February. We look for a bounce in starts to a 1183k rat, for core CPI to be steady at 2.2%y/y (headline back down to 0.8%) and industrial production to be -0.3%. Softness in industrial production is a global theme at the moment, but optimism about the US economy needs the (gradual) housing recovery to get going again. A decent bounce from last month’s 1099k rate would send a positive signal for bears of the front end of the treasury curve and for dollar bulls everywhere. As risk sentiment stabilises, long USD/JPY seems to me a good risk-reward trade over the FOMC. The market is long yen and the consensus on the USD/JPY outlook has been falling sharply, following the move in the spot rate over the last few weeks. But while the yen appreciating in the wake of a botched policy move against a backdrop of considerable asset market weakness made sense, quieter markets and rising Treasury yields don’t point to a repeat.” For more information, read our latest forex news.