Macro Freestyle: Trade wars and stagflation risks
At a Glance
The desk posits that recent US tariffs are amplifying stagflation risks, which could lead to a stronger US dollar and increased volatility in emerging market currencies. Per the full note from Standard Chartered, the implications of these tariffs extend beyond immediate trade balances, influencing global growth and inflation dynamics. The desk highlights that the US dollar's strength may be underpinned by these developments, particularly as inflationary pressures mount. With the Fed's cautious stance on rate hikes, the interplay between tariffs and monetary policy will be crucial for traders to monitor.
Full Analysis
What the desk is arguing
The desk argues that the recent imposition of US tariffs is exacerbating stagflation risks, which could lead to a stronger US dollar and heightened volatility in emerging market currencies. Per the full note from Standard Chartered, these tariffs are not merely trade barriers but are reshaping global economic dynamics, influencing both growth and inflation trajectories.
Supporting this thesis, Standard Chartered indicates that the tariffs could lead to a significant slowdown in global growth, with potential inflationary effects that may compel the Federal Reserve to reconsider its current monetary policy stance. The desk notes that the US dollar has historically benefited in such environments, where inflation outpaces growth, leading to a flight to safety among investors.
Where it sits in our coverage
Our consensus target for the USD is 1.075, with a range of 1.04 to 1.12. This aligns with targets from several firms, including: - jpmorgan: 1.10 (Mar26) - citi: 1.08 (Mar26) - db: 1.06 (Mar26)
This view is consistent with the broader market sentiment, particularly from jpmorgan, which is also aligned with our target at the upper end of the range. The desk's position reflects a cautious optimism about the dollar's strength amid ongoing stagflation concerns.
How other firms see it
Several firms, including bofa and gs, are more skeptical about the dollar's strength, suggesting that the tariffs may not have as pronounced an effect on inflation as anticipated. In contrast, jpmorgan and citi support the desk's view, emphasizing the potential for a stronger dollar amid rising inflation.
Traders should keep an eye on the USD/JPY pair as it may reflect the broader implications of US monetary policy and tariff impacts. Additionally, the trajectory of US inflation data will be crucial in shaping market expectations moving forward.
What the calendar says
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From the original
Standard Chartered’s Eric Robertsen, Global Head of Research and Chief Strategist and Madhur Jha, Head of Thematic Research, assess the impact of recent US tariffs on major trading partners, and their effect on global growth and inflation, the US dollar and EM FX. Tune in to find
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4 itemsMacro Freestyle: Trade wars, currencies and central banks
The desk believes that the US dollar will remain under pressure due to ongoing trade tensions and shifting central bank policies, as outlined in the recent commentary by Standard Chartered. Per the full note, the interplay between inflation dynamics and global trade flows is critical, particularly as emerging market (EM) central banks adjust their strategies in response to these pressures. The desk highlights that the dollar index may face challenges, especially if inflation data continues to surprise to the upside, which could lead to a more aggressive stance from the Federal Reserve. Current positioning suggests a cautious outlook for the dollar against major currencies, particularly in light of potential shifts in EM FX policies.
Macro Freestyle – Risks to market resilience
The desk highlights increasing risks to financial-market resilience, driven by geopolitical tensions and fiscal uncertainties, as articulated by Standard Chartered's recent commentary. Per the full note, the recent IEEPA tariff ruling could exacerbate market volatility, particularly in commodities and JGBs, while concerns about AI-driven market optimism may lead to a recalibration of investor sentiment. With a consensus target of 1.075 for USD/JPY, traders should remain vigilant as these factors unfold, especially with potential implications for central bank policies.
Macro Freestyle – The changing global outlook
The desk argues that the ongoing geopolitical tensions, particularly the Middle East conflict, are creating significant discrepancies between market expectations and macroeconomic realities, particularly regarding growth and inflation. Per the full note [source], Standard Chartered highlights that while markets are fixated on inflationary pressures, they are underestimating the potential for demand destruction across various economies. This misalignment could lead to a recalibration of central bank policies, particularly as inflation persists longer than anticipated, impacting discretionary spending and investment decisions.
Macro Freestyle: What to watch as we enter H2
As we transition into the second half of the year, the desk emphasizes the critical impact of geopolitical tensions, oil price fluctuations, and upcoming tariff deadlines on FX markets. Per the full note from Standard Chartered, these factors are expected to shape market dynamics significantly, particularly in the context of Fed policy and inflation expectations. The consensus target for EUR/USD sits at 1.075, with a range between 1.04 and 1.12, indicating a cautious outlook amidst these uncertainties.
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