The Fed's May meeting was quite dull in the sense that we did not get much new information.
Most interestingly is that the Fed thinks the weak GDP growth of 0.7% q/q AR in Q1 was 'likely to be transitory'.
While consensus is that the Fed will hike at the June meeting, we are more sceptical because of both the weaker economic data and still too low inflation in the US and the Fed's desire to begin reducing the balance sheet soon ("quantitative tightening").
We think the Fed wants to send up a trial balloon in June by announcing what conditions would trigger a change in its current reinvestment strategy. Actual quantitative tightening will likely start in Q1 18.
We expect the Fed to hike in July and December and 3-4 times next year.
For EUR/USD, focus in coming months will be on both Fed and ECB adopting slightly less accommodative stances. We still look for the cross to stick - by and large - to the 1.06-1.10 range in 1-3M.
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