FOMC finally to deliver a rate hike this week

This week, the FOMC finally is expected to deliver a rate hike. The expected path of the hiking cycle will ultimately determine USD price action, not the first increase, which is already widely anticipated. It is believed that the Fed will be cautious about committing to future hikes and will instead try to leave its options open, possibly signaling that although it would like to hike each quarter in which it has a press conference, uncertainty in the global outlook warrants a data-dependent approach. 

"Although we think that the USD should outperform in the medium term, we would not position for Wednesday's meeting. If we are correct, the USD could underperform EM currencies as "buy the rumor, sell the fact" price actions occur, but we would not depend on strength in emerging markets, as they continue to face significant headwinds", says Barclays.

Risks of further deceleration in China linger, and the continued drop in oil prices and political events are also hurting already-battered confidence in EM.

Data-wise, the inflation report on Tuesday will be the only important release before the FOMC meeting. Core inflation is expected to print 2.0% y/y, in line with market consensus.