USD: Possibility for FOMC to reduce IOER on Wednesday

Move would be taken dovishly

MUFG Research discusses its expectations for this week's FOMC policy meeting on Wednesday, May 1st.

Wednesday, the FOMC will announce its monetary policy decision
and will definitely leave the range of federal funds unchanged
at 2.25-2.50%. However, there is a chance that the FOMC can reduce the level of IOER to the current level of 2.40%.
It's supposed to act as a cap for the federal funds rate but has
has drifted above IOER recently, trading at 2.44% last week. A cut of 5bp
help reduce the effective rate. Although of a technical nature, the decision made at a meeting while there is not much left over could be taken dovishly by the markets., "MUFG note.

"The Fed may however feel that this spike over IOER is
temporary and will not act after only a short period of federal funds
commercial rate above the IOER. Whether this technical move takes place or
no, the key to the direction of rates will of course be the new economy
data and in that sense the data from the non-farm payroll on Friday will be
key, "adds MUFG.

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