Synopsis:

Bank of America expects no rate change at this week's May FOMC meeting, consistent with market pricing. While the Fed remains data-dependent and cautious on preemptive easing, a June cut isn't ruled out. For FX, the meeting is unlikely to be a major market mover.

Key Points:

• No Change Expected:
  The Fed is expected to hold rates steady, aligning with both BofA's view and market pricing.

• Cautious Approach on Inflation:
  The FOMC is wary of cutting rates too early, especially before assessing the full impact of new tariffs on inflation.

• Employment Remains a Trigger:
  A sharp rise in unemployment would prompt Fed action; full employment remains a core mandate alongside price stability.

• Limited USD Impact:
  Despite recent trade-related volatility, the USD has stabilized and the FOMC is unlikely to shift the FX narrative this week.

Conclusion:

BofA views the upcoming FOMC as a holding pattern event for FX. Markets await clearer signals on tariffs, inflation, and cyclical fundamentals. USD may stay rangebound, barring unexpected economic shocks or a surprise shift in Fed tone.