U.S. consumer spending is on the rise despite frustrations with persistent inflation and gloomy views about the economy
U.S. consumer spending has shown resilience amid persistent inflation and economic uncertainty, which may reinforce the Federal Reserve's stance on maintaining elevated interest rates. This uptick in spending is primarily driven by rising prices, indicating that consumers are willing to absorb increased costs in the pursuit of consumer goods. As a result, the bullish sentiment around the USD remains intact, bolstered by expectations for continued rate hikes, which are attractive for carry trades.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The sentiment from the WSJ aligns with the view that a robust consumer spending narrative can support dollar strength against the Euro and other currencies, enhancing the USD's appeal for carry trades.
How firms align
Goldman maintains a bullish stance on the USD, targeting 1.12 while aligning with the headline's positive consumer spending narrative. Conversely, BofA holds a more cautious view, setting their target at 1.04, reflecting concerns about the broader economic landscape that may limit sustained consumer spending. For more detailed views, see our internal research pages on /reports/goldman and /reports/bofa.
What the data shows
The latest household expenditure reports indicate a increase in spending despite inflation pressures, which could lead to upward revisions in GDP forecasts. For additional context on consumer behavior, refer to our insight at /research/consumer_trends.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Consumer spending rises, supporting sustained Fed rate hikes.
- 02USD carry dynamics remain strong against major currencies.
- 03Watch for upcoming inflation reports as catalysts for FX movements.
Market implications
Investors should monitor the upcoming inflation reports and consensus shifts, especially with our current EUR/USD target of 1.075. Additionally, any deviation in consumer sentiment could signal a recalibration of market positions.
Risks to this view
A significant decrease in consumer spending or an unexpected downturn in inflation could challenge the bullish USD view, potentially causing a shift in Fed policy outlook and reversing current trends in FX valuations.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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