Global FX: Cease-fire, the dollar, DM/EM FX impact, IMF round-up
At a Glance
The desk is cautiously optimistic about the dollar's trajectory in light of recent geopolitical developments and shifting inflation dynamics. Per the full note from J.P. Morgan, the announcement of a ceasefire has led to a renewed focus on carry trades, particularly favoring high-yielding currencies like the Australian dollar and Brazilian real. This comes as inflation forecasts have been upgraded across 70% of countries monitored, suggesting a more persistent inflation regime that complicates central bank policies. As the dollar remains a high-yielding currency, the desk suggests a more selective approach to bearish dollar positions, emphasizing carry efficiency in trade implementations.
Key Takeaways
- 01The ceasefire announcement has shifted market sentiment towards a more optimistic outlook for high-yield currencies.
- 02Inflation forecasts have been upgraded for 70% of monitored countries, indicating a persistent inflation regime.
- 03The dollar's medium-term bearish outlook remains, but the approach to positioning must be more selective and carry-focused.
- 04High-yield currencies like AUD and BRL are expected to outperform low-yielders in the current environment.
Full Analysis
What the desk is arguing
The desk frames the current outlook for the dollar as less bearish than previously anticipated due to the recent ceasefire and a shift towards a higher inflation regime. J.P. Morgan notes that while the dollar's medium-term bearish outlook remains unchanged, the dynamics of inflation and energy prices necessitate a more nuanced approach to dollar positioning.
Supporting this view, the strategists highlight that 70% of inflation forecasts have been upgraded, indicating a shift from a deflationary to a more inflationary environment. This backdrop suggests that high-yield currencies will likely outperform low-yielders, reinforcing the case for carry trades.
Where it sits in our coverage
Our current consensus target for EUR/USD is 1.1500, with a range of 1.1300 to 1.2000. Specific firm targets include: - jpmorgan: Mar26 1.1800, Jun26 1.2000, Dec26 1.2000 - goldman: Mar26 1.1800, Jun26 1.2100, Dec26 1.2500 - morganstanley: Mar26 1.2000, Jun26 1.2300, Dec26 1.1600
This view aligns with the broader consensus, as several firms, including jpmorgan and goldman, are forecasting similar levels for the coming months, with our target sitting comfortably within the range of expectations.
How other firms see it
Firms such as jpmorgan and goldman are aligned in their bullish outlook on high-yield currencies, while bofa holds a contrary view with a more bearish stance on the dollar. This divergence highlights the differing interpretations of the ongoing inflation dynamics and geopolitical risks.
The trajectory of EUR/USD will be closely tied to the Fed's monetary policy decisions and the evolving inflation landscape, particularly as central banks navigate the implications of rising energy prices and inflation expectations.
Market Implications
Traders should monitor the EUR/USD level closely, particularly as it approaches the consensus target of 1.1500. The upcoming Fed meeting will be critical in shaping market expectations around interest rates and inflation.
From the original
This week, our global FX & EM strategists discuss the outlook for the dollar and the renewed case for carry across regions. We also discuss FX-relevant takeaways from the IMF/WB spring meetings. This podcast was recorded on 17 April 2026. This communication is provided for inform
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