Russia FX Beat - July 26, 2017

> Today's focus. Busy day as Russian market contends with US sanctions, local CPI and US oil inventories; Fed decision tonight.
> Global trigger: Fed statement. The main event today is the Fed rate decision at 21:00 Moscow time. US rates will be kept at 1.25%, leaving the focus on the statement to the decision.
With eight weeks until the Fed's September decision, there is little pressure on it to make major changes to today's statement. The main dovish risk is that the Fed suggests concern over low inflation. On the hawkish side, there is an outside chance that it will announce a start date for balance sheet reduction.
Since markets are pricing a less than 50% chance that the Fed will raise rates once more by year end, which the Fed itself projects, the scope for a dovish market reaction today is relatively limited. For more, see our preview, "No Hike, But a Hint of Concern."
> Bottom line. Given the market pricing, we see limited dollar risks today. EUR/USD support is in the 1.1580-1.1600 area.
> Regional trigger: Sanctions bill progresses. As anticipated, the US House of Representatives overnight passed a bill that would place new sanctions on Russia. It also includes sanctions on Iran and North Korea and passed with an overwhelming majority of 419-3.
The bill, which was amended in the House, will now go back to the Senate for a vote by end July, before being presented to President Trump for final approval. It enjoys support of more than two thirds in Congress, so a veto by Trump could be overturned. The codification of sanctions against Russia into law seems inevitable.
Markets are generally priced for this development. But entrenching sanctions for years and the prospect of more measures, as suggested by the bill, add downside risk for local markets and the ruble. Counter-sanctions from Russia are also possible.
Yesterday, we published our CBR meeting preview, "Assume Nothing, Question Everything," explaining why we think the CBR will hold rates at 9% on Friday. Relevant to the decision is the weekly CPI data due today at 16:00. A flat or negative w-o-w outcome would boost the case of those favoring a cut.
> Bottom line. Yesterday, the ruble largely ignored the rising oil price and today we doubt that EIA inventories (17:30) will show the sharp 10.2 mln bbl draw registered by the API. We think USD/RUB will move higher, unless the Fed decision generates a more positive carry trade backdrop.