Russia FX Beat - December 14, 2017

> Today's focus. Fed dull, ECB might be too; US tax bill, retail sales.
> Global trigger: Over to the ECB. Overnight, the Fed raised rates 25 bps to 1.50%, as expected. The overall tone from the meeting was cautious. Consequently, the dollar sold off by around 0.5% and US yields fell. Following the decision, the PBoC raised one of its interest rates by a smaller 5 bps.
The Fed upgraded its 2018 GDP forecast from 2.1% to 2.5% y-o-y, with "most" members factoring fiscal stimulus in to estimates. This was offset by still subdued inflation projections. Some had expected the Fed to raise its forecast to four hikes in 2018. This did not happen. The regulator retained a three-hike strategy. Markets are skeptical, barely pricing in two moves.
Pressure on the dollar should be alleviated by reports that the US Congress had agreed on a joint tax reform bill, which will likely be voted on next week. The package sees the corporate tax rate being cut from 35% to 21%.
Today is another busy day. Norges Bank (12:00 Moscow time), the BoE (15:00) and the ECB (16:30) are all expected to keep policy unaltered. The BoE decision comes after the first major defeat for the UK government on Brexit overnight, while ECB President Draghi's press conference will be of interest. The US sees November retail sales data at 16:30.
> Bottom line. The Fed decision brought about an abrupt end to the recent dollar uptrend. To us, yesterday's Fed outcome is not a game-changer and EUR/USD is fairly valued at 1.18.
> Regional trigger: Turkey focus. Ahead of tomorrow's CBR decision, attention in the EM space is on a Turkish rate decision at 14:00. In contrast to the orthodox policy deployed by the CBR this year, the CBRT has struggled to maintain credibility. USD/TRY almost touched 4.00 in recent weeks, briefly taking TRY/RUB below 15, before the lira recovered somewhat. The recovery owed partly to expectations of a sizable hike from the CBRT. Anything less than a 100 bp increase in its late liquidity lending rate to 13.25% would likely be met with disappointment and renewed lira losses. CPI in Turkey is currently at 13% y-o-y.
> Bottom line. USD/RUB participated in yesterday's late dollar selloff, briefly trading below 58.50. Although the ruble is not particularly sensitive to the Fed rate outlook, positive risk sentiment today could see USD/RUB test 58.50 again. In Russia, the main event is Putin's annual press conference at 12:00.