Macro Freestyle: Focusing on the fiscal

What the desk is arguing

The desk argues that the fiscal sustainability of major economies, particularly the US and China, will significantly influence FX rates and bond markets in the latter half of 2025. Per the full note from Standard Chartered, the implications of fiscal pressures are expected to be pronounced, especially for EM economies that lack robust fiscal buffers.

Supporting this view, the commentary notes that the fiscal challenges in the US and China could lead to tighter monetary policies, which may further impact growth rates across DM and EM economies. The desk highlights that the potential for increased government spending or stimulus could create volatility in FX markets, particularly for currencies tied to these economies.

Where it sits in our coverage

Our consensus target for the USD/EUR 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 with jpmorgan's target, which sits at the upper bound of the consensus range, while bofa presents a more cautious outlook at the lower end. The desk's positioning reflects a belief in a stronger dollar as fiscal pressures mount.

How other firms see it

Several firms, including jpmorgan and citi, align with the desk's view, anticipating that fiscal dynamics will drive currency valuations in the coming months. In contrast, bofa takes a more bearish stance, suggesting that the dollar may weaken due to potential fiscal mismanagement.

Key indicators to watch include the USD/JPY trajectory, which could reflect shifts in fiscal policy and central bank responses, as well as the implications of upcoming Federal Reserve meetings on interest rates.

What the calendar says

...