Focus of the day:
"Three themes dominate the FX market going into today’s FOMC decision, none of which appear to have any direct connection to its outcome:
1. The ongoing slide in commodity prices and the resulting damage being inflicted on commodity-related currencies such as AUD, BRL and MXN;
2. The resumed tensions in the Chinese equity market and resulting concerns for emerging (and now developed?) markets more broadly;
3. The surprising strength and resilience of the EUR, with even EURCHF breaking to four-month highs despite what appears on balance to be a risk-averse environment.
A key driver of our long-standing bullish USD view has been our expectation that the Fed can hike rates this year even as the rest of the world remains stalled, leading to USD-positive policy divergence. Credit Suisse’s US economics team believes that the Fed will use today’s Fed meeting to provide a strong hint that a rate hike is around the corner, as was done in previous hiking cycles starting in 1999 and 2004. For this reason we prefer long USD positions going into today’s FOMC meeting."
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