US Dollar (USD) is firmer within its multi-day tight trading range, US 10-year Treasury yields are consolidating just under 4.00%, and S&P500 futures point to further record gains in the underlying index. Today’s FOMC policy decision will guide markets, BBH FX analysts report.

Dissent risk could lend USD intra-day support

"The FOMC is widely expected to follow up on September’s “risk management” cut with a 25bps Fed funds rate reduction to 3.75%-4.00%. The press release should reiterate “that downside risks to employment have risen” given that private-sector ADP payrolls unexpectedly fell in September. And, Fed Chair Jay Powell will likely stick to his cautious policy easing guidance amid the US government shutdown-driven data drought."

"The surprise will come from the number of FOMC participants that dissent in favor of keeping rates on hold. Fed Governor Stephen Miran stated he would support again a 50bps cut at this week’s meeting. The risk is there’s one or two votes in favor of keeping rates on hold (we suspect Goolsbee and/or Musalem. That could offer USD intra-day support. Remember, the FOMC September 17-18 meeting minutes noted that 'A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision'."

"Finally, the FOMC is poised to announce plans to end the reduction of the Fed’s balance sheet. In an October 14 speech, Powell said 'Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. We may approach that point in coming months…' Reserves - funds held by depository institutions at the Fed - total $2.93 trillion, slightly above the $2.7 trillion level Fed Governor Christopher Waller estimate is consistent with ample liquidity."