More from Fed's Collins:Strong productivity gains should help lessen inflationary pressure

What the desk is arguing

The desk sees Collins' remarks as a pivotal indication that productivity improvements can mitigate inflationary pressures, supporting a more dovish stance from the Fed. Per the full note source, she highlighted that strong productivity gains are not limited to AI advancements, suggesting a more robust supply-side recovery.

This view is bolstered by the current low employment rate and ongoing supply-side challenges, which Collins believes will help absorb growth without exacerbating inflation. The implication is that the Fed may not need to adopt an overly aggressive policy response, which could stabilize market expectations around future rate hikes.

Where it sits in our coverage

Our consensus target for the EUR/USD pair is 1.075, with a range from 1.04 to 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This perspective aligns with jpmorgan, which supports a more optimistic outlook, while bofa takes a more cautious stance at the lower end of the range. The desk's call is positioned towards the upper bound of this spread, reflecting confidence in the soft-landing narrative.

How other firms see it

Firms like jpmorgan and citi share a similar outlook, emphasizing the potential for productivity gains to alleviate inflation concerns. Conversely, bofa and deutsche express skepticism, focusing on persistent demand-side pressures that could undermine this narrative.

Watch the EUR/USD trajectory as it may reflect the Fed's evolving stance on interest rates, particularly in light of Collins' comments. Additionally, the upcoming US employment data will be crucial in assessing the labor market's impact on inflation dynamics.

What the calendar says

...