Morgan Stanley, Bank of America Merrill Lynch, Nomura, Societe Generale, and
Danske Bank on the Fed
The FOMC left rates unchanged, in line with
market and Morgan Stanley forecasts. Nevertheless, the FOMC statement delivered
a dovish surprise by (a) noting the negative impact of recent global
developments on growth and inflation and (b) explicitly referencing these
developments as risks. The statement was complemented by lower growth,
inflation, NAIRU and Fed Funds rate forecasts. Despite the ‘dots’ maintaining a
projection for a hike this year, we think there is room for some modest
near-term USD softness as the market adjusts to a more cautious Fed. Long USD
positioning is vulnerable over coming days and perhaps weeks…But USD Impact
Temporary. Our structurally bullish USD view has never been Fed-focused. Rather,
our framework is built on the reduced investment attractiveness in much of the
rest of the world. Any setback in the USD is likely to be short-lived in our
view, providing a renewed buying opportunity against EM and commodity-related
currencies.
