A 25bp hike, taking the Fed Funds target range to 0.75-1.00%, is fully priced for tonight’s FOMC (18GMT/19CET). There will be plenty of fresh inputs to assess, including the tone of the statements, the Dot Plots, macro forecasts and references to timing of the balance sheet reduction.

Chair Yellen has typically taken a dovish approach to such events, although right before the black-out period, Fed speakers conveyed the message of an economy at a transition and presumably requiring a slightly faster pace of Fed rate hikes. We understand the risk of a buy the ‘rumour, sell the fact’ impact for the dollar today, although we would note that long dollar positioning – even against the low-yielders such as EUR and JPY – is 25-30% below where it was late last year. Our preference is for DXY to push through recent highs at 102.25. $ longs in trouble if DXY breaks below 101.00 this evening.

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Right after the FOMC, 20GMT/21CET should see the first exit polls from today’s Dutch election (sample size 30,000). Currently opinion polls expect Mark Rutte’s VVD party to secure 26 seats and work with at least three if not four other parties to gain the required 76 seat majority. The big question tonight is whether polls are under-estimating the number of seats Wilders’ PVV party wins (polls suggest 23). Were the PVV to win the largest number of seats they would be offered the first chance at forming a cabinet. This outcome is priced in neither the EUR nor the Dutch bond market and would also raise the prospect that polls were under-estimating the chance of Le Pen becoming French President in May. We favour EUR/USD lower on the Fed story and look for support at 1.0500/0525 to be pressed. A break above Monday’s high at 1.0715 would be surprise to us and risk 1.0800/0830. Also look out for a speech at 1030CET today from ECB’s Praet and whether he addresses the issue of tightening while PSPP is on-going.

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