The U.S. Dollar Faces Uncertainty as Fed Considers Rate Cut - Morgan Stanley Analysis
In a note dated Sept. 16, analysts at Morgan Stanley have raised the possibility of a bounce in the U.S. dollar if the Federal Reserve opts for a smaller rate cut than expected. The central bank is set to start its policy-setting meeting amid predictions of a hefty 50 basis-point reduction, with traders pricing in a 68% chance for this scenario.
Should the Fed decide on a 25 bps cut instead, the U.S. dollar could see a reversal of its recent decline to its lowest levels this year. Morgan Stanley's U.S. economists believe that a unanimous decision for a 25 bps cut is more likely, with a total of 75 bps worth of rate cuts expected by the end of 2024.
While the Chair may not provide specific guidance on the pace of the cutting cycle, the bank's analysts anticipate a short-term strengthening of the USD post-meeting. However, the performance of the dollar may vary, with potential gains against emerging market and commodity currencies.
In summary, the upcoming Fed decision on interest rates could have a significant impact on the value of the U.S. dollar. Investors should pay close attention to the outcome as it may influence their investment decisions in both domestic and international markets.