Global Outlook Q3 2024 Podcast – Clouded by geo-economic uncertainty

What the desk is arguing

The desk argues that the possibility of a soft landing for the global economy is becoming more tangible, particularly as central banks signal a shift towards accommodative monetary policy. Per the full note source, this scenario could lead to a depreciation of the U.S. dollar, benefiting EM currencies that have been under pressure.

Supporting this view, the Federal Reserve's recent comments suggest that interest rate cuts could be on the horizon, with market expectations now pricing in a 25 basis point cut by mid-2024. This dovish pivot is critical as it aligns with the desk's thesis on the potential for flat growth, which could further weaken the dollar.

Where it sits in our coverage

Our consensus target for the USD/EM pair is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)

This view aligns closely with jpmorgan, which is positioned at the upper bound of our consensus range, while bofa presents a more cautious stance at the lower end. The desk's outlook reflects a moderate bullish sentiment towards EM currencies in light of expected U.S. monetary policy adjustments.

How other firms see it

Firms such as jpmorgan and citi are aligned with the desk's optimistic outlook on EM currencies, anticipating a weaker dollar as a result of U.S. rate cuts. Conversely, bofa holds a more bearish view, suggesting that the dollar may remain stronger than anticipated due to persistent inflationary pressures.

Key currency pairs to watch include USD/BRL and USD/INR, as these will likely reflect the broader trends in U.S. monetary policy and global economic conditions.

What the calendar says

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