Global H2-23 Outlook Podcast – Balancing on the summit
At a Glance
The desk interprets the current economic landscape as a precarious balancing act for the US, with the potential for recession looming amidst tight monetary policy and persistent inflation. Per the full note source, while the US banking sector may have stabilized, the broader economic challenges remain significant, particularly as growth expectations pivot towards emerging markets like India and the ASEAN region. This shift suggests a recalibration of risk and opportunity in the FX space, particularly for currencies tied to these emerging economies. Our consensus targets reflect a cautious outlook, with a focus on how these dynamics will influence currency movements in the second half of 2023.
Full Analysis
What the desk is arguing
The desk frames the current economic situation as a critical juncture for the US economy, where the worst of the banking crisis may have passed, yet the specter of recession persists due to tight monetary conditions and ongoing inflationary pressures. Per the full note source, the shift in growth prospects towards emerging markets indicates a potential reallocation of capital that could impact currency valuations significantly.
Supporting this view, Standard Chartered highlights that the US economy is grappling with stubborn inflation rates, which remain above the Federal Reserve's 2% target, complicating the monetary policy landscape. The latest Consumer Price Index (CPI) data shows inflation at 3.7% year-over-year, underscoring the challenges ahead.
Where it sits in our coverage
Our consensus target for the USD/EUR pair is set at 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns with jpmorgan, which sees a stronger dollar in the medium term, while bofa presents a more bearish outlook, suggesting a divergence in expectations regarding US economic resilience and inflation control.
How other firms see it
Firms like jpmorgan and goldman are aligned in their bullish outlook on the dollar, anticipating that the US economy will outperform in the face of global challenges. Conversely, bofa and citi have adopted a more cautious stance, predicting potential weakness in the dollar as emerging markets gain traction.
Key currency pairs to monitor include USD/INR and USD/SGD, as movements in these currencies will likely reflect the shifting growth dynamics and investor sentiment towards emerging markets.
What the calendar says
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From the original
While the worst might be over for the US banking sector, the impact of tight monetary policy and stubborn inflation still poses challenges for the world’s largest economy. What’s in store for the US, and is it staring down a potential recession? Growth hopes have shifted towards
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