EUR/USD, USD/JPY flows - biggest FOMC risk an anti-climax if a 'silent hold'?

A quiet Asia, but the dollar holds onto its gains built further through the NY session yesterday, leaving USD/JPY in its 157.75-158 current anchor, and EUR/USD at and around the year lows just ahead of 1.11~.

The Fed meeting itself is a funny one though. At face value, the 90% probability of unchanged could be said to understate the objective odds of a hike – after all, a very valid case can be made for getting on with a move and some on the Fed will argue for it. But in reality, the odds themselves become quite reinforcing and binary. Does it make sense for the Fed to deliver a big market shock this meeting, when the majority of the Fed see only one hike this year, knowing how it would then impact market expectations and extrapolation? And ahead of the midterms. Clearly not.

So that actually then leaves the opposite risk – that the meeting proves hugely underwhelming and a damp squib. Warsh is not in favour of verbose forward guidance at the best of times, and this is not a SEP meeting. So if it’s a hold, then it might just be a ‘silent hold’ as much as the the hawkish-hold the market is positioning for. 

Maybe not quite buy the rumour sell the fact, but a similar buy the rumour… and then left hanging. Whatever the post Fed intraday reaction, the ECB follows closely of course. And there pre-meeting positioning will also remain skewed toward dovish movement, so limiting any premature mood change.