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All eyes back on the FOMC - BAML

FXStreet (Barcelona) - Team Bank of America Merrill Lynch explained weaker-than-expected global growth data and growing concerns over disinflation have weighted on markets over the past few weeks.

Key Quotes:

"One consequence was a shift toward an even later expected lift off point for the Fed - from July to November - as well as a slower expected path of tightening."

"Conflicting comments from Fed officials have fed some expectation that the Fed will "taper the taper." We expect the FOMC to announce QE3 buying will conclude in October, but to signal that they are not rushing toward rate hikes by maintaining the current statement language."

"The market is still pricing in a tightening cycle that is well above pre-taper tantrum days, but less aggressive than before the September FOMC meeting."

"Extending QE3 past October would be a dovish surprise given current market pricing, but we expect the final US$15bn taper will occur at this meeting. Adding back into the statement explicit concern about too low inflation would be a modestly dovish signal; we do see some chance of that change at this meeting - or a dovish dissent if it does not happen."

"However, with current pricing, anything short of extending QE3 may not move the market in a more dovish direction. A neutral message - ending asset purchases but leaving the language unchanged - probably begets at most some drift toward an earlier liftoff, but still later than mid-year 2015."

"Changes to the "significant underutilization" or "considerable time" language could lead to a greater repricing, but that is why they are unlikely, in our view. Stepping back, we fully expect the Fed to continue with its very patient and gradual approach to the tightening cycle, which should limit the risks of any meaningful market sell-off."

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