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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
The desk posits that the recent comments from Fed Chair Jerome Powell, particularly the framing of tariff-driven inflation as a transient shock and the potential for a September rate cut, create a bullish backdrop for equities and, by extension, for selected FX pairs. Per the full note source, this indicates a strong likelihood of a 25 basis point cut in the next FOMC meeting, contingent upon forthcoming economic data. Notably, Nvidia's impending earnings report is crucial, as its performance could significantly influence technology stocks that have driven market gains—accounting for 12 percentage points of the S&P's 58.5% appreciation since the launch of JCPT. The expectation of strong CapEx among tech firms emphasizes this narrative.
The desk believes that Powell's latest comments signal a shift that may be bullish for equities, translating into FX sentiment particularly within tech-heavy economies. The suggestion of a potential rate cut comes as a strong signal, highlighted by Powell’s indication that a robust non-farm payroll print is now a key determinant in deviating from this course. Additionally, Nvidia's results are being closely monitored due to their outsized influence on market performance.
Supporting this outlook, Powell's acknowledgment that current inflation metrics, largely shaped by tariffs, are more of a one-off shock rather than the onset of persistent inflationary pressures, reinforces the likelihood of a September rate cut. This has been a topic of considerable debate among analysts, with a broad consensus forming around the anticipation of further easing from the Fed if incoming data supports it.
Currently, our consensus target for the USD/EUR pair stands at 1.075, with a range expectation between 1.04 and 1.12. Notable firms include: - JPMorgan: target of 1.10 - BofA: target of 1.04
This view aligns closely with the outlook from JPMorgan, which also anticipates a supportive policy environment. However, BofA provides a more cautious stance, positioning its target at the lower end of the spectrum.
A number of firms are aligned with the desk’s positive view on equities, including Goldman Sachs and Morgan Stanley, who both see favorable conditions buoyed by stabilized rate expectations. In contrast, Barclays holds a contrary position, emphasizing potential risks of inflation re-emerging or economic slowdowns, thus bearish on equities in the immediate term.
The interplay between Powell's rate strategy and impending Nvidia earnings creates critical intersections, particularly as the outcomes could have ripple effects through tech sectors and emerging market currencies exposed to U.S. equities.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should closely monitor Nvidia's earnings on Wednesday as it could set the tone for market sentiment and potentially guide USD/EUR moves. A positive outlook from Nvidia could reinforce bullish positions in the tech sector, impacting related FX pairs significantly.
Risks to this view
The primary risk to this thesis would be a disappointing payroll report that contradicts Powell's easing narrative, or a failure from Nvidia to reassure markets about demand, which could lead to a recalibration of growth expectations and risk-off sentiment in equities.
Hello and welcome to Ahead of the Curve. My name is Ulrike Hoffmann-Borchati, CIO for the Americas and Head of Global Equities for UBS Wealth Management. Two things matter to the market.
One is the Powell pivot last Friday, and the other will be Nvidia earnings this Wednesday after the close. Let me talk about each and then try to paint the overall market picture. The punchline of Powell's speech last week was twofold.
One, it framed tariff-driven inflation as a one-off price level shock. And two, it opened the door to a rate cut in September. This clearly confirmed our null hypothesis of a 25 basis points cut in September.
What was surprising was the pivot of casting tariffs more clearly as a one-off effect. He mentioned but de-emphasized the impact on inflationary expectation. Now only a very strong non-farm payable print without negative revisions changes this path.
What is not market moving in Friday's speech is the reset of the Fed's policy framework back to its flexible inflation targeting. It is just acknowledging that the inflation makeup language post-COVID was ill-fitted. But even more important for U.S. equities will be the Nvidia earnings on Wednesday.
Nvidia is up more than 10X since the launch of JCPT and accounts for about 12 percentage points of the 58.5% appreciation of the S&P since then. Three key points for Nvidia earnings in order of importance. First off and the most important is any commentary on the demand picture.
With a strong CapEx commentary from the hyperscalers, the race for AI leadership is still on. One study that sends slight shivers to the market last week was the MIT Nanda study that claimed that 95% of enterprise Gen AI pilots fail. However, the report also outlined that the successful 5% of pilots generated millions of P&L impact and that collaboration with specialized vendors increased the success rate to two thirds.
Number two, any hedging on China revenues will be important, especially now that the Chinese government discourages the import of U.S. AI chips. And lastly, gross margin commentary and supply constraints.
Now that Nvidia is shifting from chips to full-on AI superchips. So what do we expect? As long as the prospect for gold is there, shovels will be sold.
In other words, we don't expect a significant shift in the demand picture. At the same time, we expect a more cautious tone on China, a region that still accounts for more than 10% of Nvidia revenue. Seasonally, the stock price reaction to August Nvidia earnings has been more mixed and it would not be surprising to see the same this week.
So let's put it all together from our three investment lenses, macro, bottom-up fundamentals, and structural transformation. On the macro side, we see slowing growth but a benign rate environment. We're now pricing in four rate cuts into the middle of 2026.
On the bottom-up side, the S&P is in the top DESA of its historical valuations, driven by concentrated value creation in the AI5, the five key enablers of AI. Nvidia, Broadcom, Amazon, Google, and Microsoft. Those five now make up a quarter of the S&P 500 market cap.
And lastly, structural transformation. We see a capex boom from AI and electrification further amplified by reshoring. There's no time in history since the start of the Fed fund futures with quite this constellation.
The closest one is 1999, but the big difference there is that rates were going up during this period instead of down. The economy was much stronger back then with more than 4% real GDP growth. So where does this leave us with our investment recommendations?
The power pivot on Friday is bullish for both US equities and bonds. With Fed cuts now cushioning the economic slowdown, we still suggest buying pullbacks in US equities and getting exposure to US quality bonds. With this, stay well and stay ahead.
UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate, UBS. This material has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and is published for informational purposes only. As a firm providing wealth management services globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services.
Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements. In the USA, UBS Financial Services Inc. is a subsidiary of UBS AG and a member of FINRA SIPC. For information, please visit our website at ubs.com forward slash working with us.
For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at ubs.com forward slash CIO dash disclaimer.
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