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<p style="" class="text-align-justify">The takeaway from last week's FOMC meeting decision was that we got more of a dovish hike by the Fed. The details have been scrutinised aplenty and when you look at market pricing now, the CME Fedwatch Tool is indicating 85% odds that the Fed will not hike rates in May. That sort of outlook is also reflected in the rates market as Treasury yields have fallen:</p><p style="" class="text-align-justify">10-year yields are hanging on around the lows for the year close to 3.30% and that's a key line in the sand to watch in the days/weeks ahead.</p><p style="" class="text-align-justify">Essentially, that looks to be the threshold in which market participants will be convinced of whether the Fed will stick to its dot plots or if we are going to see a more dovish playbook to come i.e. possibility of rate cuts.</p><p style="" class="text-align-justify">Powell's message to focus on the words of 'may' and 'some' in this passage definitely will keep markets probing:</p><p style="" class="text-align-justify">"The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time."</p><p style="" class="text-align-justify">That being said, policymakers still have a momentous task to bring inflation down back towards the 2% target. There might be signs that price pressures are easing but that doesn't mean that their job is done.</p><p style="" class="text-align-justify">As such, even if markets are not aggressively pricing in further rate hikes now, it doesn't mean that things will not change moving forward. I would argue that rates pricing these days are extremely sensitive and can quickly turn on a dime. So, don't be fooled by what markets are saying now as the situation can rapidly reverse in one or two days' time.</p><p style="" class="text-align-justify">It pays to be flexible in this kind of trading environment. For now, it's all about the next big data and/or risk event. US banks will continue to come under heavy watch but if sentiment continues to pick up, we will have to work with key data releases to get a better sense of when the tightening cycle will end.</p>

                This article was written by Justin Low at www.forexlive.com.