How should I be positioned? with Dr. David Kelly (JPMorgan Asset Management) and Jason Draho (UBS CIO)
At a Glance
The desk views the current trajectory of the U.S. economy as moderately resilient, characterized by stable inflation and steady employment rates, which underpin a cautious yet optimistic outlook for asset allocation strategies. Per the full note from UBS's podcast featuring Dr. David Kelly, the expectation is to maintain steady economic growth despite signs of potential slowing driven by tariffs and immigration policy changes. This nuanced perspective invites traders to consider positioning strategies that account for both resilience and possible headwinds. The consensus among key firms suggests a target range of 1.04 to 1.10, indicating divided views on currency trajectories amidst this backdrop.
Key Takeaways
- 01Current U.S. economic outlook suggests stabilization amid potential tariffs and immigration policy changes.
- 02Inflation is likely to trend down towards 2%, with unemployment stable at around 4%.
- 03Asset allocation strategies may need to prioritize resilience while preparing for external pressures.
- 04Market positioning should be influenced by the mixed expectations represented by different firms' targets.
Full Analysis
What the desk is arguing
The desk frames the outlook for the U.S. economy as one centered on resilience, supported by a healthy mix of stable employment and reducing inflation rates. Jason Draho and Dr. David Kelly emphasize that while the economy appears to be avoiding recession, it may experience a deceleration towards the end of the year due to external factors. This perspective aligns with a cautious investment approach amid shifting dynamics in tariffs and immigration policies.
Dr. Kelly elaborated that inflation is expected to trend down towards 2%, and unemployment remains stable around 4%. This equilibrium suggests underlying strengths in the economy, although the shifts mentioned could lead to uncertainty in growth expectations.
Where it sits in our coverage
The consensus target for the USD pair is currently positioned at 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 by Mar26 - bofa: 1.04 by Mar26
This perspective aligns moderately with our current views, with jpmorgan aligning favorably at the higher end of the spectrum while bofa takes a contrary position at the lower end.
How other firms see it
Firms such as jpmorgan and ubs echo a similar sentiment regarding the U.S. economic resilience, highlighting asset allocation strategies that favor stable yet cautious approaches. Conversely, bofa and citi present a more bearish outlook, cautioning against potential economic deceleration in the near term.
Key pairs to monitor in this context include the USD/EUR for reactions to U.S. monetary policy shifts, particularly in relation to the Fed's approach to inflation control.
Market Implications
Traders should watch for price movements around the 1.075 level as a potential pivot point, particularly in light of upcoming economic indicators that could influence inflation expectations. Positioning strategies may need to be adjusted based on reactions to these levels.
From the original
Jason is joined in studio by Dr. David Kelly for an engaging conversation about the potential path forward for monetary policy, the state of the U.S. economy, equity market valuations, and asset allocation considerations. Featured are Dr. David Kelly, Chief Global Strategist and
Related speeches
4 itemsTop of the Morning: CIO Strategy Snapshot - Running it hot
The desk maintains a cautiously optimistic view on the short-term economic outlook, driven by resilient consumer spending and a potentially favorable December FOMC meeting, as highlighted in the commentary from UBS. Per the full note, recent data shows 2.7% real spending growth, reflecting a solid recovery trajectory which should support further upward momentum in equity markets and, consequently, a favorable environment for risk currencies. However, with crucial labor market data upcoming, the desk underscores the need for careful attention to shifts in economic indicators and Fed communications, particularly as market participants speculate on rate cuts and their potential impacts on currency valuations.
Top of the Morning: CIO Strategy Snapshot - A new year
Per the full note [source], Jason Draho of UBS CIO argues that the U.S. economy is entering 2026 on solid footing, with growth likely to match or slightly exceed consensus expectations despite tariff headwinds. He sees a favorable backdrop for risk assets but flags AI bubble concerns and policy uncertainty as key risks. The desk's view aligns with a broadly optimistic consensus on U.S. growth, but divergence emerges on the pace of Fed easing and the sustainability of equity valuations. No specific currency pairs are discussed, but the macro outlook implies continued USD strength against G10 peers.
Macro Monthly Podcast with UBS Asset Management
The desk's primary thesis emphasizes a resilient U.S. economy characterized by a schism among sectors—booming AI capital expenditures, a recessionary housing market, and stable consumer spending. Per the full note [source], economists foresee U.S. real GDP growth at 2% coupled with persistent inflation near 3% into 2026. While there are signs of a cooling labor market, including a rising unemployment rate, the absence of significant layoffs keeps the Federal Reserve on an easing path, sowing increased investor confidence. The current landscape positions traders to consider inflation dynamics and growth forecasts when making FX decisions.
How should I be positioned? with Richard Bernstein (RBA) and Jason Draho (UBS CIO)
As we look ahead to 2026, the desk notes Richard Bernstein's emphasis on the surprisingly robust U.S. GDP growth, which is tracking around 4%, significantly above expectations, suggesting an optimistic macro backdrop for risk assets going into the new year. Per the full note [source], this supports a potential bullish positioning in the FX space, likely favoring currencies like the USD as the Fed's role remains pivotal. Consensus views align around a strong U.S. economic outlook, reflecting a potential shift in monetary policy trajectories that could influence currency valuations significantly.
More from UBS ON AIR
5 items- UBS ON AIR
Top of the Morning: The Great Wealth Transfer - An introduction
- UBS ON AIR
Signal over Noise: A new Fed framework
- UBS ON AIR
UBS On-Air: Paul Donovan Daily Audio 'Sticking with the optimistic bias'
- UBS ON AIR
Top of the Morning: CIO Equity Pulse - Monthly performance update & outlook
- UBS ON AIR
UBS On-Air: Paul Donovan Daily Audio 'Little of substance'