A New Era
At a Glance
The desk believes the anticipated appointment of Kevin Warsh as Fed chair could mark a watershed moment for U.S. monetary policy, potentially driving further strength in the U.S. dollar while exerting downward pressure on the euro. Per the full note from J.P. Morgan, expectations surrounding Warsh's leadership are tied to a hawkish tilt given recent macro developments, including rising inflation and robust economic data. This perspective aligns with J.P. Morgan's bearish forecast for EUR/USD, projecting a decline to 1.14 by December 2026 amidst a shift in market sentiment. As we navigate through the current landscape, the absence of high-impact events in the upcoming calendar suggests potential stability ahead, but vigilance remains essential.
Key Takeaways
- 01Warsh's appointment as Fed chair may signify a hawkish shift in monetary policy.
- 02EUR/USD is projected to fall to 1.14 by December 2026, reflecting J.P. Morgan's bearish outlook.
- 03The current consensus estimates for EUR/USD range from 1.1200 to 1.2000, with particular divergence from bearish firms.
- 04No upcoming high-impact events may provide stability ahead for trading strategies.
Full Analysis
What the desk is arguing
The desk frames this as a critical juncture for the Federal Reserve, highlighting that Kevin Warsh's leadership could usher in substantive changes to monetary policy. This aligns with broader market expectations of a continued hawkish stance necessary to combat persistent inflation pressures, which could bolster the greenback.
J.P. Morgan's updated outlook reflects a significant negative adjustment on the euro, expecting it to fall to 1.14 by the end of 2026, marking a pivotal inflection point that serves to reflect the changing dynamics in U.S. monetary policy. Recent economic data supports this hawkish pivot, affirming that the Fed may take bolder actions than previously anticipated.
Where it sits in our coverage
Our current consensus for EUR/USD is 1.1567, with a range spanning from 1.1200 to 1.2000 for December targets. Specific forecasts include: - jpmorgan: Mar26 1.1800, Jun26 1.2000, Dec26 1.2000 - deutschebank: Mar26 1.1800, Jun26 1.2000, Dec26 1.2500 - bofa: Mar26 1.1700, Jun26 1.1900, Dec26 1.2200
This view diverges from the cross-firm consensus, particularly as our call anticipates a stronger dollar compared to several peers, particularly in light of bofa and their bearish stance. Our outlook aligns closely with jpmorgan, yet positions at the high end of the consensus range reflect our bullish outlook on USD strength.
How other firms see it
Several firms, including deutschebank and hsbc, are cautiously optimistic regarding the dollar, similarly forecasting upward movement. Conversely, firms like bofa and danskebank hold a contrasting perspective, projecting the euro may hold steadier against potential dollar gains.
The EUR/USD trajectory is closely linked to U.S. monetary policy dynamics. This includes considerations around the Fed's interest rate decisions, which will likely influence variations against both emerging market currencies and other currency pairs including USD/JPY.
What the calendar says
No high-impact events are scheduled in the next 30 days, meaning traders may have an opportunity to position themselves accordingly without distraction or volatility from economic surprises.
Market Implications
Traders should closely monitor EUR/USD as it approaches the 1.14 target set by J.P. Morgan, particularly assessing any shifts in sentiment leading up to future Fed meetings. Given the lack of scheduled events, positioning for potential weakness in the euro could benefit from current market intelligence.
From the original
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