How should I be positioned? with Torsten Slok (Apollo) and Jason Draho (UBS CIO)
At a Glance
The FX desk posits that the current discourse on U.S. trade policy and monetary policy will significantly sway market sentiment moving towards the end of 2025. Per the full note from the UBS podcast featuring Torsten Slok and Jason Draho, the evolving backdrop of trade—with tariffs on the rise—forms a critical lens through which to assess macroeconomic and market trajectories. They highlight that trade discussions are not static; rather, they reflect a dynamic landscape that directly influences the prospects for economic growth and asset allocation strategies. Hence, positioning around these themes is paramount for traders in the upcoming months.
Key Takeaways
- 01Rising tariffs in the U.S. could have a profound impact on market stability and direction.
- 02The evolving landscape of U.S. trade policy is closely linked to macroeconomic performance and asset allocations.
- 03Current consensus targets predict a range for EUR/USD, indicating divided views on future movements due to trade concerns.
- 04Market positioning will need to adapt as trade discussions evolve and economic indicators shift throughout the latter half of 2025.
Full Analysis
What the desk is arguing
The desk foresees that trade policy in the U.S., particularly concerning tariff adjustments, will bear significant implications on financial markets leading into 2025. This perspective is reinforced by insights from Torsten Slok, who emphasized the fluid nature of trade relations during discussions on the UBS podcast.
Supporting this outlook, the U.S. has initiated tariff increases recently, indicating a trend towards protectionism which could stifle growth and alter forecast scenarios for economic performance. Investors may face the challenge of recalibrating their expectations amid these developments, particularly considering how volatility in trade policy impacts investor sentiment.
Where it sits in our coverage
The consensus target for the EUR/USD exchange rate currently stands at 1.075, with a range from 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
This view aligns closely with jpmorgan at the upper bound of the consensus range, while bofa presents a more bearish outlook at the lower end. Such divergence indicates a split sentiment among market participants regarding the timing and magnitude of potential currency movements, influenced by trade policy nuances and Fed actions.
How other firms see it
General sentiment appears divided among firms in the FX space. While jpmorgan supports a moderate bullish stance on the euro against the dollar, bofa expresses concerns about continued U.S. dollar strength due to potential economic headwinds.
Key metrics to watch include U.S. GDP growth rates and changes in the Federal Reserve's stance, which can greatly impact USD movements against major pairs like EUR/USD and USD/JPY. As such, the trajectory of trade negotiations and economic indicators remain crucial for forward-looking assessments.
Market Implications
Traders should closely monitor the next developments in U.S. trade policy and Fed communications, particularly any statements or changes in tariffs, as they may alter positioning in major currency pairs. A sustained break above 1.10 in EUR/USD could indicate stronger sentiment in favor of euro strength amidst these dynamics.
From the original
Torsten rejoins Jason in the New York podcast studio to exchange thoughts on Fed independence (and the course for monetary policy), the direction of US trade policy (and economic implications), along with 2H25 market outlooks and portfolio positioning considerations. Featured are
Related speeches
4 itemsTop of the Morning: POTUS 47 - Another brick in the tariff wall
The desk argues that ongoing developments in U.S. trade policy, particularly in the form of tariffs, remain a critical factor influencing market dynamics, as highlighted in the recent UBS commentary. Per the full note, the effective tariff rate has not escalated as much as possible due to various exemptions, but aggressive measures are still in place, solidifying trade barriers. Trade tensions contribute to the dollar's resilience against major currencies, impacting positioning among traders. There are no imminent catalysts on the economic calendar that could alter this trajectory in the near term.
How should I be positioned? with Dan Ivascyn (PIMCO) and Jason Draho (UBS CIO)
According to the insights shared by Dan Ivascyn and Jason Draho, the present U.S. trade policy appears to be a pivotal factor in shaping market outlook and investment strategies. Per the full note [source], they emphasize that tariffs will likely remain integral under the current administration, which they believe will use trade policy as a tool for economic management through 2025. Current positioning should consider the uncertainty introduced by these potential tariff fluctuations, especially as President Trump has consistently stated his preference for tariffs since the 1980s. The importance of tariffs as a market catalyst is highlighted by the potential of future rounds of U.S.-China trade talks, which could lead to significant market volatility. As reported, investors should anticipate that tariff policy will directly influence not only economic growth but also sectorial performance across financial markets, marking it as a crucial element for asset allocation considerations moving forward.