No room for surprises at the FOMC meeting – BTMU

Market consensus does not expect changes at today’s FOMC meeting, according to Derek Halpenny, Eurpean Head of GMR at BTMU.

Key Quotes

“We are unlikely to get much in the way of change in communication from the FOMC. But no doubt any changes will be modest given that inflation expectations measured in the financial markets remain very low”.

“Indeed, the 5yr-5yr forward inflation swap rate at 1.92% as of yesterday is barely above the alltime low of 1.80% recorded when crude oil price hit the lows of the year in February. The longer that continues the more it will bother the FOMC”.

“But from a USD perspective, short-term yields continue to drift higher as the probability of action in December increases”.

“The Brexit-related drop in the 2-year yield has now fully reversed and the 2-year spread over the EZ is quickly returning to cyclical highs close to 120bps that will keep the dollar under upward pressure versus the euro”.