USD fallout limited after Fed remains on hold - BNPP

Research Team at BNP Paribas, notes that the FOMC voted to leave rates unchanged at 0.50% after three FOMC voters dissented in favour of a hike: Mester, George and Rosengren, and 14 and 17 Fed members see at least 1 hike in 2016.

Key Quotes

“The economic projections showed the median DOT signalling 1 hike this year, 2 hikes in 2017 (from 3) and 3 hikes in 2018 (unchanged). The terminal rate was revised down to 2.9% from 3%. USD fallout thus far has been limited, consistent with two points. First, the statement signals a strong bias to hike this year, noting that risks to the outlook at now roughly balanced and that the case for a rate increase has risen. Second, the market was positioned net short USD heading into the meeting.

While it is possible in the near-term the USD range could extend a bit further on the downside, we would view dips as a buying opportunity. We think that selling the upcoming Nov BoJ vs buying the Dec FOMC risk premia is attractive and recommend 2m/3m USDJPY calendar spreads.”