Global FX: CPI/ USD, Model take-aways, EM rundown
At a Glance
The desk maintains a cautiously bullish stance on the USD, balancing recent soft CPI data against persistent hawkish signals from the Federal Reserve. Per the full note , while the CPI print suggests moderating inflationary pressures, the Fed's commitment to tightening policy supports a stronger dollar outlook. The ongoing divergence between U.S. monetary policy and that of other central banks is expected to reinforce this trend, particularly in the short term.
Key Takeaways
Full Analysis
What the desk is arguing
The desk frames this as a prudent moment for USD positioning against EM currencies, especially within Latam and EMEA. Moving forward, the interplay between inflation data and Fed hawkishness will be critical in shaping market dynamics.
Supporting this view, J.P. Morgan highlights the systematic model outcomes which suggest that, despite softer inflation signals, demand for USD remains robust due to rate differentials. The latest data reveals a CPI reading of 2.3%, prompting dialogue around future Fed meetings and their likely interest rate trajectory.
The alternative read would be that any signs of stronger-than-expected global growth could overshadow these concerns, driving investors back to risk-on assets, which would undermine USD strength.
Where it sits in our coverage
Our consensus target for the USD stands at 1.075, within a range of 1.04 to 1.12. Specific targets from relevant firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns closely with jpmorgan, indicating a more bullish outlook compared to bofa, which occupies the lower end of projections. The desk's stance is notably at the upper end of the spread, reflecting expectations of a stronger USD in the coming months.
How other firms see it
Aligned firms such as jpmorgan and others see the USD benefiting from current economic conditions. In contrast, bofa represents a more cautious perspective, projecting a lower target.
Watch the USD/JPY trajectory as it may mirror the Fed's rate path and offer insights into the broader risk sentiment in the market. Additionally, upcoming GDP releases from key EM economies could drive market reactions, impacting USD positions.
Market Implications
Traders should watch the 1.075 level as a potential resistance point for the USD. Additionally, monitor any shifts in Fed communications to gauge future rate decisions in light of inflation trends and economic growth indicators.
From the original
We discuss USD take-aways from the soft CPI print countered by Fed hawkishness, main take-aways from our suite of systematic models and key drivers/ views in EM with focus on Latam and EMEA. Speakers Meera Chandan, Global FX Strategy Patrick Locke, Global FX Strategy Antonin Dela
Related speeches
4 itemsFX Daily: Dollar consolidates recent gains
The desk maintains a cautiously optimistic view on the dollar, anticipating that it will continue to find support on dips amid a backdrop of improved risk asset stability, particularly in the tech sector. Per the full note [source], the current environment is seen as conducive for the dollar, especially ahead of key US pricing data and monetary policy discussions. The upcoming CPI and PPI data releases will be critical in determining market sentiment towards the Federal Reserve's trajectory, particularly following last week's strong labor market indicators. Current positioning shows a consensus building around a more hawkish Fed, indicating potential dollar gains amidst potential for sustained risk asset consolidation.
FX Daily: Hawkish Fed minutes keep dollar supported
The desk maintains a bullish outlook on the dollar following the hawkish September FOMC minutes, which indicate a near-term policy rate hike is anticipated by year-end. The expectation of further tightening in response to persistent inflationary pressures, alongside robust Treasury demand, underpins this stance. Per the full note, elevated U.S. Treasury yields are likely to keep the dollar supported, despite recent volatility. This backdrop contrasts with fragile sentiment in European markets, particularly in the EUR/USD and EUR/GBP pairs.
More from JPMORGAN GLOBAL RESEARCH
5 items- JPMORGAN GLOBAL RESEARCH
US Rates: Climb a mountain and turn around
- JPMORGAN GLOBAL RESEARCH
Global FX: USD debate corner post mid-terms, payrolls, BoE
- JPMORGAN GLOBAL RESEARCH
Global Commodities: A surplus of agri risks
- JPMORGAN GLOBAL RESEARCH
Global Rates: Systematic trading of EUR rates gamma – a new model