US Dollar Eyes CPI Data and FOMC Policy Release, Dot Plot Key Indicator

• US inflation is likely to remain uncomfortably sticky for the Fed.
• Will Fed officials pencil in one or two rate cuts this year?

Risk markets are opening the session slightly better bid, but moves are expected to be limited ahead of the keenly awaited US inflation report (13:30 UK) and the latest Federal Reserve monetary policy decision (19:00 UK). Markets expect core inflation y/y to nudge 0.1% lower to 3.5%, while headline inflation is expected to remain unchanged at 3.4%. Any notable deviation from these forecasts would fuel a spike in market volatility.

The Federal Open Market Committee (FOMC) meeting, scheduled for later today, is expected to leave interest rates unchanged within the current range of 5.25% to 5.5%. However, the main event will revolve around the release of the latest Summary of Economic Projections and the closely watched "dot plot" visualization.

The dot plot is a crucial tool that illustrates where FOMC officials anticipate interest rates to be at the end of the current year and the subsequent two years. The March dot plot revealed a range of opinions, with two officials expecting rates to remain static, two anticipating a single rate cut, five projecting two rate cuts, and nine officials forecasting three rate cuts in 2024. Market analysts and economists will scrutinize the updated dot plot for shifts in these projections. A key area of focus will be whether officials who previously predicted three rate cuts have now moderated their expectations to one or two cuts. The consensus view among market participants will hinge on whether the dot plot signals a preference for one or two rate cuts by the end of the year, and if additional FOMC members have migrated to the no rate cut camp.

This FOMC meeting carries significant weight as it will shape market expectations regarding the Federal Reserve's monetary policy trajectory and the potential implications for the broader economy. Investors will closely monitor the dot plot and the accompanying statements for insights into the Fed's assessment of economic conditions and its plans for future rate adjustments.

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