BAML on the Fed decision Wednesday
Bank of America Global Research discusses the USD outlook around tomorrow's FOMC policy decision.
"We expect the FOMC to stay on hold at the January policy meeting, keeping the fed funds target range at 1.50-1.75%. The Fed is likely to make technical adjustments to its administered rates, increasing IOER, O/N RRP and O/N RP by 5bp...
A dovish risk for USD is if the Fed places a renewed emphasis on downside risks emanating from abroad, but this is not our expectation. Overall, we anticipate a relative non-event. Over the past year, Fed meetings have typically resolved USD-bearishly over the subsequent three days (one up / seven down). However, when controlling for USD appreciation into the event (as now), interestingly the outcome has been decidedly more neutral," BofA notes.
"Although we think the US dollar will eventually begin to weaken this year and thus erase some of its historical overvaluation as a global economic recovery emerges, we continue to assess the balance of short-term USD risks as skewed to the upside," BofA adds.
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