Russia FX Beat - October 30, 2017

> Today's focus. Fed decision and chair nominee.
> Global trigger: Focus on the Fed. This week, the focus shifts to the US. Usually, Wednesday's Fed decision would be in the spotlight, but this meeting has long been viewed as one where rates will be held at 1.25%. This is because all guidance has pointed toward the December 13 meeting as the time for a 25 bp hike. Since there will not be a follow-up press conference, the market will look to the statement to the decision.
Instead, the spotlight is set to be on President Trump's nomination of the next Fed chair, promised to be delivered this week. Current Fed Governor Jerome Powell is seen as the favorite. His selection might drag on the dollar this week, offsetting the dollar-positive tone expected from the statement.
There is important US data due this week, as well. Today sees September PCE deflator and spending at 15:30 Moscow time. The former, the Fed's favored inflation measure, is expected to have remained at a low 1.3% y-o-y. On Friday, the October jobs report should show a strong rebound from last month's hurricane-affected 33,000 decrease.
> Bottom line. EUR/USD is likely to hold close to 1.16 today.
> Regional trigger: Hawkish CBR. On Friday, the CBR cut its key rate 25 bps to 8.25%. The accompanying statement was hawkish. The CBR said that CPI of 3% was still "close to 4%" and that the undershoot was driven by "temporary factors." Although it now accepts that CPI will end the year near 3%, it has retained an upward bias on the medium-term risks. It also said that the population's inflation expectations "remain elevated" and their downward trend had "yet to become sustainable and consistent."
The message from the CBR is clear: CPI will pick up, inflation expectations are not anchored and investors should understand that 25 bp cuts are the norm and 50 bp ones the exception. The rate market has adjusted accordingly, pricing out more than 5 bps of easing across the curve. We expect a 25 bp reduction in December. For more, please see our CBR decision review, "25 bp Cut Today and Another in December," published on Friday.
> Bottom line. Friday was a roller coaster day for the ruble. USD/RUB burst through 58, finally catching up with EM FX weakness elsewhere, and reached a high of 58.77. The ruble then recovered as the dollar slipped and now stands at close to 58. The R275 bln due in profit taxes today might support the ruble; still, we think USD/RUB is more likely to edge higher this week.