Week Ahead FX outlook:
It will be a major week ahead for central bank decisions, both globally and in Asia. The most important of which will be the Federal Reserve policy decision on 19 Sep (Asia time), together with decisions from the Bank of Japan, People’s Bank of China, Bank Indonesia, and Taiwan’s central bank.
The Federal Reserve meets at a critical juncture, with intense speculation on whether the FOMC will “begin big or start small” in its 1st rate cut, even as recent US inflation came in a touch stickier than expected. The market has been vacillating between pricing for 25bps or 50bps, with a recent Wall Street Journal article keeping the door ajar to a jumbo cut. The bigger picture beyond the September decision is that rates markets are still pricing for the Fed Funds rate to reach 3% as soon as June 2025, and the forcefulness of communication from Chair Powell, including from the dot plot and the Summary of Economic Projections will be important to watch for. Our global team has continued to argue that front-loaded cuts are better for the Fed by reducing the need to do more later to support the economy (see Jackson Hole Recap and Global FX Monthly).
China will also release its monthly economic data such as industrial production, retail sales, and fixed asset investment over the weekend, together with the 7-day reverse repo rate and loan prime rates sometime next week. The high frequency indicators suggest further moderation in domestic economic momentum over the past few months, and it’ll be important to see if there is any clarity from authorities on further stimulus measures including policy rate cuts or RRR reductions. Bloomberg news reported that China may cut mortgage rates on more than US$5 trillion on outstanding mortgages stocks and if true, will certainly be a welcomed move to help the economy. We continue to expect more fiscal and credit stimulus measures from Chinese authorities, coupled with another 20bps of 7-day reverse repo rate cuts by 1Q2025.
Lower-yielding and "cheaper" Asian currencies to receive more support
