Synopsis:

TD anticipates a Fed rate cut and BoE hold at this week's central bank meetings. Structural JPY longs are favored heading into 2025 due to anticipated policy shifts and economic dynamics.

Key Points:

• Fed & BoE Expectations:

  • Fed: A 25bp rate cut expected.
  • BoE: Likely to hold rates steady.
  • Market focus on the implications of fiscal and monetary policy mix amidst persistent inflation.

• USD Outlook:

  • USD remains strong but constrained by seasonality and short-term valuation.
  • Strategy: Prefer buying dips rather than chasing highs.

• BoJ and Banxico Potential Surprises:

  • BoJ: A hike remains possible this week but could be delayed to January pending wage data.
  • Banxico: Potential for a 50bp rate cut.

• JPY Longs for 2025:

  • Favor long JPY positions versus EUR, CHF, and GBP, supported by potential BoJ policy normalization and relative economic shifts.

Conclusion:

TD forecasts a busy central bank week with notable policy divergence and structural opportunities in FX markets, particularly favoring JPY strength into 2025.