Mid-Month Update: Balancing Tariff News vs Recent Data Trends

What the desk is arguing

MUFG EMEA is adapting its strategy in recognition of recent economic indicators and changing tariff situations. The team has pushed back its forecast for the next Fed rate cut to September, arguing that current neutral rates are better reflected in the low 3% range instead of the low 4% range, suggesting a tightening outlook.

Supporting this stance, the inflation report has shown softer-than-expected figures, while the recent non-farm payroll (NFP) data looked better at first glance, complicating the Fed's decision-making. By choosing not to react too quickly to this mixed data, MUFG signals confidence in long-term economic stability and potential growth despite the current global rate environment.

Where it sits in our coverage

Our consensus target for the relevant currency pair is 1.075, and MUFG's revised timeline aligns with our stance of taking a cautious approach amid evolving macroeconomic conditions. We maintain a firm spread because the mixed economic signals indicate a level of uncertainty that markets may struggle to price accurately.

Notably, other firms have varying targets, reflecting diverse approaches to the current economic climate:

• JPMorgan: Target of 1.10, positioned cautiously due to inflation concerns and a potential Fed tightening bias as of Mar-26.
• Goldman Sachs: Target of 1.08, reflecting uncertainty around tariff impacts and labor market health.
• Barclays: Target of 1.06, indicating a more conservative view based on recent economic indicators.

How other firms see it

While MUFG's perspective leans toward an adjustment in Fed rate policy timelines, other firms present both aligned and contrary views. Goldman Sachs and JPMorgan share a more cautious optimism regarding growth and potential rate hikes, reflecting a broadly aligned stance.

Conversely, BofA presents a more bearish outlook, advocating for lower targets based on expected ongoing economic headwinds. This divergence illustrates the market's complexity in interpreting the implications of mixed data.