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The Federal Reserve convenes for a meeting that does not consist of new forecasts nor a press conference. In addition, no policy  change is expected, and these expectations are a result of the Fed’s explicit wording in the last meeting.

Update:  Fed decision boosts USD that sees through Q1 weakness

So, does this  imply an a boring event? Not at all. Markets will be scrutinizing every word and movements could be wild: in the initial reaction, the action when Asia opens and the full move when Europe comes into play. Here are 5  things to look out for:

5 keys

  1. Rates: The Fed removed the wording “patience” regarding rate hikes but accompanied this removal with a clear message that rates are unlikely to rise in April.  The end of forward guidance was well telegraphed by the Fed. So, no guidance is on the cards now, apart from the general  theme: everything is “data dependent”. If the Fed hints or says that also in the next meeting (June) a move is off the cards, it would be dovish, even if a rate hike in June is not expected. The passage appeared in 3rd paragraph.
  2. Jobs: Since the last meeting, we had the terrible NFP for March: a gain of only 126K broke the +200K winning streak. The wording in the Fed statement was “strong job gains”, a very bullish notion. They also continue seeing underutilization as diminishing. Is this still in effect? That is the big question. If they focus on the bigger picture and  leave the “strong” adjective in place, it would be dollar positive. A softer wording such as “solid” would be an acknowledgement of a deterioration, a downgrade of the assessment and certainly negative for the dollar.
  3. Inflation: The second mandate of the Fed is price stability. So far, they have been relatively calm on that front, seeing through the fall in energy prices and seeing long term expectations as stable (first paragraph). On the other hand,  want to  be “reasonably confident that inflation will move back to its 2 percent objective over the medium term”. Since March,  core inflation has actually ticked up. Will they  show more confidence on inflation? If so, it is dollar positive and if they leave the current statement unchanged, it is neutral.
  4. The economy in general: With  a series of  disappointments for Q1 already in place in  March, that statement already noted that “economic growth has moderated somewhat”.  Things did not improve since then. So, any signs of worry would be dollar negative, while the same statement would be neutral. The bigger question is: Was Q1 a  weather related, one-off slide with the Fed expecting a bounce back in Q2 like last year? Or is it a downturn that is of concern? Worries imply a significant delay in tightening and could hit the dollar hard. The Fed is likely to leave the more balanced  approach unchanged for now.
  5. Dissenters: The voting members in 2015 are more aligned with Yellen than the composition during 2014, and it is hard to point to an extreme dove or extreme hawk. The potential dissenters are Charles Evans, a dove, and Jefferey Lacker, a hawk. If Evans dissents, we can  see the decision as more hawkish. If Lacker dissents, we can see it as more dovish. In any case, given the previous two meetings for 2015, any dissent would be a surprise.

This meeting is important for the next moves in the dollar. The greenback has been retreating on bad news, but did not fall off the cliff.

For EUR/USD, the pair is trading in the wide 1.0450-1.1050 range. Will the Fed shake it out of range?

More:  Sell EUR/USD At Current Levels: Here Is Why – Barclays