How should I be positioned? with Joe Davis (Vanguard) and Jason Draho (UBS CIO)
At a Glance
The desk views the current positioning of FX markets in light of the potential economic trajectory articulated by Joe Davis of Vanguard and Jason Draho of UBS. As noted by Davis, the U.S. economy is exhibiting momentum with growth projected to be above trend, yet facing headwinds due to tariff implications set to impact GDP by nearly 2%. Per the full note source, this sets the stage for FX traders to position strategically as interest rate trajectories may adjust based on economic data that reflects these dynamics.
Key Takeaways
- 01The U.S. economy shows resilience with 3% growth above trend, but external tariff pressures may constrain future growth.
- 02Markets should prepare for potential shifts in monetary policy as economic indicators evolve throughout 2025.
- 03Positioning in USD may need to reflect the anticipated balancing act of growth against inflation and external trade dynamics.
Full Analysis
What the desk is arguing
The desk suggests that traders should be mindful of the identified growth trajectory in the U.S. economy, particularly with implications for the USD amid looming tariff impacts. Davis noted that although the economy remains robust, the expected slowdown may shift monetary policy expectations in upcoming periods, which could heavily influence FX direction.
Supporting this narrative, U.S. economic growth has been strong at about 3% above trend, but with a forecasted decline due to external pressures like tariffs, the desk anticipates markets will need to adjust their expectations for USD pairs, particularly ahead of any indications from the Fed on future rate changes.
The alternative read would be to see continued robust growth without significant adverse effects from tariffs; however, that appears less likely given the current economic indicators.
Where it sits in our coverage
The current consensus target for the USD is positioned at around 1.075, with a range suggesting possible fluctuations between 1.04 and 1.12. The following firms provide relevant forecasts: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
This desk's outlook aligns with the upper bounds of the broader consensus, suggesting a more bullish stance on the USD than reflected by some firms like bofa.
How other firms see it
General sentiment among firms like jpmorgan aligns with our view of managing bullish USD exposure, while bofa presents a more cautious stance, projecting a lower target.
Attention to pairs such as USD/EUR and USD/JPY will be crucial as these markets could react dynamically to Fed statements regarding interest rates influenced by economic growth and inflation data.
Market Implications
Traders should watch the USD closely, particularly as economic data begins to reflect the influences of tariffs, potentially impacting growth projections. Monitoring the upcoming Fed statements will be key in determining USD strength against major pairs.
From the original
Joe and Jason exchange views and thoughts on a wide range of topics, including the health of the US economy, the implications of US trade policy, the road ahead for monetary policy, and more. Plus, a review of investment recommendations for the current environment. Featured are J
Related speeches
4 itemsHow should I be positioned? with Dr. David Kelly (JPMorgan Asset Management) and Jason Draho (UBS CIO)
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.
Top of the Morning: CIO Strategy Snapshot - From uncertainty to Risk
The FX desk anticipates a volatile market environment as uncertainty lingers over impending tariff announcements from the Trump administration, coupled with critical economic indicators such as the March employment report. Per the full note from UBS, these developments could amplify existing investor anxiety regarding slowing growth and potential recession risks. While the exact impacts on currency pairs are yet to unfold, positioning recommendations from UBS's April House View suggest strategic adjustments may be necessary as traders navigate this heightened uncertainty. Historically, tariff announcements have led to significant market reactions, underscoring the importance of watching these developments closely.