Russia FX Beat - September 18, 2017

> Today's focus. Digesting the CBR decision, waiting for the Fed.
> Global trigger: Awaiting the Fed. The main event this week is Wednesday's Fed rate decision. There is no expectation of any change to the current 1.25% policy rate, but there are several other potentially market-moving elements to the decision.
The Fed is expected to confirm that it is to start scaling down its $4.5 trln balance sheet, possibly from the start of October. Investors will also scour the Fed statement, new "dot plot" and Chair Yellen's press conference.
The Fed currently projects one 25 bps hike before year end, with a further three to arrive in 2018. Markets do not believe this, barely pricing in one hike through end 2018. Our expectation is that the Fed retains its view for probably three hikes over this entire period. This should prove to be a positive dollar outcome.
For today, the schedule is relatively quiet. August CPI in the eurozone should be confirmed at 1.5% y-o-y. BoE Governor Carney is scheduled to speak at 18:00 Moscow time. The GBP was a huge outperformer last week, gaining in excess of 3%, as the BoE signaled a rate hike might come in 4Q.
> Bottom line. We expect EUR/USD to hold in a 1.1900-1.950 range into Wednesday's Fed decision.
> Regional trigger: Uneventful. The CBR duly delivered a 50 bps cut on Friday, taking its key rate to 8.50%. Although the CBR said there is scope for cuts in 4Q and 1Q18, the overall tone was one of caution. The statement said that medium-term risks of inflation overshooting "dominate." In her press conference, Chair Nabiullina said that while inflation is currently just 3.3% y-o-y, she does not believe there is a "substantial or persistent" deviation from the 4% inflation target. Despite this, the rates market was rather unmoved, failing to shift rate expectations any higher. We expect 50 bps of easing in 4Q.
Also on Friday, S&P decided to keep Russia's sovereign rating at BB+, with a positive outlook. S&P's review contained some upbeat comments, and if the economy continues to progress, we do not exclude the possibility that Russia will be upgraded in 2H18, thereby regaining its investment-grade status.
> Bottom line. Overall, the ruble was unaltered by the CBR and S&P decisions. Positive oil price momentum argues that USD/RUB could edge lower toward 57 this week, while a dollar-positive Fed outcome would offset this.