Morgan Stanley anticipates a series of 25bp cuts from the Federal Reserve through mid-2025 and recommends maintaining short positions on USD/JPY, targeting a move towards 138.
Key Points:
FOMC Rate Decision:
The FOMC cut the federal funds rate by 50bp to 4.875%, reflecting ongoing progress on inflation and concerns regarding the labor market.
Economic Projections Update:
The Summary of Economic Projections (SEP) now indicates four cuts this year, a significant shift from the previously expected one, aligning with softer inflation and labor market data.
Fed’s Commitment:
The initial larger cut signals the Fed’s dedication to staying ahead of inflationary pressures. Chair Powell emphasized that future cuts will depend on incoming data.
Forecast for Future Cuts:
Morgan Stanley projects two additional 25bp cuts this year and four more in the first half of 2025.
FX Strategy:
The firm’s FX strategists recommend shorting USD/JPY as the Fed continues its easing cycle.
Conclusion:
Morgan Stanley’s outlook supports a strategy of shorting USD/JPY in anticipation of ongoing Fed cuts, positioning the dollar for potential weakness as the easing cycle unfolds.
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This article was written by Adam Button at www.forexlive.com.
