Here's what the banks have to say about tonight's FOMC
SocGen
Anything other than a 25bp rate hike would be a huge surprise to the market, notes Societe Generale FX Strategy.
In that regard, SocGen's US economists think that an upward adjustment in the Fed's dots plot is possible to send a signal to the market that the FOMC is serious about normalizing policy.
"The happy medium, where dots rise but not too fast, is the world in which USD/JPY and AUD/JPY thrive,"
Nomura
The USD has gained back some momentum ahead of tomorrow's FOMC meeting.
In that regard, Nomura Research notes that the market has already priced the likelihood of a March rate hike well, but an earlier hike may improve market confidence in the Fed and its dots.
"Into coming FOMC meetings, the risk of the dots being downgraded is clearly lower, which should be USD positive,"
Credit Agricole
As the Fed is widely expected to hike by 25bp this afternoon, Credit Agricole CIB's economists point out there are two reasons why the FOMC should continue to signal a gradual pace of policy tightening.
1) Timing delays and uncertainty over fiscal policy2) some Fed tracking estimates suggesting Q1 growth is running under 2%. The December dot plot showed six projections below the median and five above it," CACIB clarifies.
On the USD reaction, CACIB argues that after the NFP the market may be more vulnerable to a hawkish surprise, and this suggests rates should maintain the recent steepening of the front end of the curve, keeping the USD supported.
TD
TD Research notes that the core of attention at today's FOMC policy decision will center on the tone, dots, and forecasts.
In that regard, TD doubts that the Fed will want to send such a strong signal, so it is more likely to get a few shifts in this year's dots and a risk of some backup in the medians for 2018/2019.
This outcome, according to TD, supports a knee-jerk bounce in the USD but doubt there would be limited follow-through in the coming days.
"This leaves looking for pullbacks as buying opportunities," TD advises.
BAML
Fed speakers have already send a strong signal that the Fed intends to hike this week, notes Bank of America Merrill Lynch FX Strategy.
"With the rate decision likely to be a nonevent, attention turns to the Summary of Economic Projections and the press conference at this week's FOMC meeting," BofAML adds.
In this regard, BofAML believes that the combination of a shift higher in the dots and language changes in the statement will send a hawkish signal, but suspects that Chair Yellen will sound more balanced in her press conference.
As such, BofA argues that depending on how hawkish the Fed sounds this week, 'there is room for repricing in rates and further strengthening in the USD.'
Nordea
Noreda Markets shares the widely held expectation of a 25bp increase in the fed funds rate on Wednesday, to a range of 0.75-1.00%.
"With a rate hike already priced in by the markets, the focus will turn to the Fed's forward guidance...We expect the Fed again to emphasise that the pace of rate hikes will be "only gradual"." Nordea projects.
Regarding the dot plot, Nordea believes the FOMC's median projections of the fed funds rate at the end of 2017 and 2018 are unlikely to change, consistent with three rate hikes both this year and in 2018, in line with the recent projection from December.
Finally, Nordea expects The FOMC's neutral rate estimate to remain unchanged at 3.0%.
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