Global FX: Sailing the USD Bearish Ship in Murky Waters
At a Glance
The desk is advocating for a bearish outlook on the USD amidst a backdrop of geopolitical tensions and limited data visibility due to the US government shutdown. Per the full note source, the commentary highlights the fragility of global growth momentum and the potential for heightened credit risks, particularly in the context of US-China relations. This bearish sentiment is supported by recent trends in currency positioning and market reactions to the ongoing uncertainty. Our consensus target for the USD is set at 1.075, with a range reflecting diverging views among major firms.
Key Takeaways
- 01J.P. Morgan reiterates a bearish USD stance, citing limited data visibility from the US government shutdown as a key factor delaying Fed hawkishness.
- 02Global growth momentum outside the US is showing signs of stabilization, supporting non-USD currencies.
- 03New flare-ups in credit risk and US-China tensions are adding to the dollar's headwinds, with implications for AUD, NZD, and EM FX.
Full Analysis
What the desk is arguing
The desk maintains a structurally bearish USD view, arguing that the US government shutdown has created a data vacuum that delays any hawkish repricing of Fed expectations, while global growth momentum is showing signs of stabilization outside the US. They emphasize that new credit risk events and deteriorating US-China relations further undermine the dollar's safe-haven appeal.
Supporting this thesis, the strategists point to resilient growth indicators in Asia and Europe, which contrast with US domestic uncertainty. The IMF/World Bank meetings this week reinforced a consensus for a weaker dollar as non-US economies gain traction, with positioning data showing elevated short USD bets.
Implicitly, the desk is rejecting the notion that the shutdown will prove temporary and benign, or that US exceptionalism will reassert itself quickly. They see the data blackout as effectively delaying any policy pivot, leaving the dollar vulnerable to further near-term losses.
Market Implications
The bearish USD outlook implies sustained strength in G10 currencies such as EUR, GBP, and JPY, as well as potential upside in AUD and NZD if global growth momentum continues. EM FX may benefit from a weaker dollar but faces headwinds from credit risk and geopolitical tensions. The lack of US data may increase volatility as markets rely on alternative indicators.
From the original
Against a backdrop of limited data visibility from the US government shutdown, our Global FX Strategists discuss 1) how global growth momentum indicators are tracking, 2) new flare-ups in credit risk & US-China relations impacting the currency space, 3) recent developments in Aus
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