Banks forecasts ahead of the FOMC meeting

The Federal Open Market Committee will deliver its rate statement on May 3. Most analysts expect the FOMC to stay on. Current Target Rate probabilities for the Fed Meeting: 95.2% for leaving interest rate unchanged at 1%, and only 4.8% for the rate increase. Investors also may get some insight into the Fed’s plans to shrink its balance sheet.

Source: CME FedWatch Tool

Here are some strategies/forecasts from major banks

Barclays

Barclays Capital Research expects the FOMC to leave its present monetary policy stance unchanged at its May meeting on Wednesday. The bank’s analysts forecast two additional rate hikes this year (in June and September) and balance sheet reduction towards the year-end (most likely in December). The Fed’s officials might acknowledge the recent soft economic data. If they mention probability of the imminent economic slowdown, it will be a signal that action in June might be off the table. USD will be hurt.

Credit Agricole

The bank’s analysts noted that the yen has weakened following the first round of the French Presidential election. They found out an important pattern for the JPY to watch going to the FOMC meeting this week.

"The pattern for more than a year now has been for the JPY to strengthen post FOMC meetings, as they have tended to disappoint the hawkish rhetoric by FOMC members ahead of the meeting."

This time the currency might not follow this pattern as there is less potential for disappointment around tomorrow’s FOMC meeting.

Societe Generale

According to SocGen strategists, if the US dollar manages to keep at least a modest bid going to the FOMC meeting, there is a risk for USD/CAD to spike higher towards 1.40.

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