Ahead Today
G3: FOMC rate decision, eurozone CPI
Asia: Bank Indonesia policy rate decision
Market Highlights
The upcoming FOMC meeting is crucial to the outlook on the US dollar, Asian currencies, and broader risk assets. Markets widely expect the Fed to cut rates by 25bps, but the key focus is likely on the Fed’s forward guidance, specifically whether the dot plot signals a faster pace of cuts through the rest of 2025 and into 2026. The updated Summary of Economic Projections will also shed light on the Fed’s expectations for growth, inflation, and unemployment rate.
Political pressure from President Trump to accelerate policy easing will add another layer of complexity for the Fed. This is especially with new Governor Stephen Miran, who’s also the Council of Economic Advisers’ chair, joining the September meeting. He may opt for a larger rate cut in September. Meanwhile, Governor Lisa Cook, whom Trump has publicly targeted for removal from the Fed, will still participate in the September policy meeting, adding tension to the monetary policy debate.
However, yesterday’s stronger-than-expected macro data may complicate the Fed’s narrative. August retail sales rose 0.6%mom, matching July’s pace and beating market expectations of 0.2%. Core retail sales (ex-auto and gas) also increased by 0.7%mon, while industrial production edged up by 0.1%. These figures point to underlying resilience in the US economy, even as labour market indicators soften.
Most Asian currencies gained against the US dollar in yesterday’s session, on the back of a 0.6% drop in the broad US dollar index (DXY). DXY is now resting on its long-term support, making the upcoming FOMC policy decision a pivotal moment for the US dollar outlook. JPY, KRW, THB, and PHP led gains, strengthening by 0.5%-0.7% against the US dollar. If the Fed signals a deeper easing cycle, it will validate market’s dovish bias. This could fuel further gains in several emerging Asian currencies, given their sensitivity to shifts in dollar liquidity and US rate differentials.