Consumer Checkpoint: The great convergence
The desk finds that the convergence in consumer behaviors, as noted in the Bank of America Institute's latest Consumer Checkpoint report, signals a possible stabilization in spending despite earlier volatility. Per the full note, the K-shaped economic recovery appears to be leveling out, with year-over-year card spending growth easing to 5.0% in July, down from 6.3% in June, largely attributed to the conclusion of temporary spending spikes—this bodes well for the overall economic outlook since underlying demand remains solid. The desk believes this trend could foster increased confidence among institutional traders, potentially stabilizing currency pairs influenced by U.S. economic fundamentals, particularly given that spending, excluding gas, still grew by an impressive 4.3% YoY.
What the desk is arguing
The desk argues that the current economic landscape suggests a potential shift from a K-shaped recovery, with consumers exhibiting more uniform spending patterns. The convergence of wage and spending gains, as reported by Bank of America, indicates a broadening recovery that could stabilize markets.
In July, the easing of total card spending to 5.0% YoY represents a sign of moderation rather than deterioration, driven largely by the cessation of temporary spending injections related to seasonal promotions. The underlying strength in spending ex-gas points to robust consumer demand which reinforces this view.
Where it sits in our coverage
Our consensus target for the relevant currencies sits at 1.075, with a range spanning from 1.04 to 1.12. Notable targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's call aligns closely with jpmorgan's target, leaning towards the upper end of the consensus range, suggesting a more optimistic outlook compared to bofa's more cautious position.
How other firms see it
Firms aligned with the desk's view include jpmorgan, which reflects similar bullish sentiment on U.S. consumer spending, while bofa takes a more conservative stance, foreseeing a pullback in consumer confidence.
Watch the USD/CAD trajectory closely as it correlates with shifts in U.S. consumer sentiment and spending patterns. The elevation in spending dynamics could have spillover effects influencing the EUR/USD exchange rate as well, particularly in light of ongoing U.S. monetary policy adjustments.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Consumer spending patterns are converging, signaling a shift in economic dynamics.
- 02Year-over-year card spending growth moderated to 5.0% in July due to the end of temporary boosts.
- 03Solid growth of 4.3% YoY in spending ex-gas indicates underlying demand remains robust.
- 04Institutional confidence may be restored as consumer behaviors stabilize.
Market implications
Key levels to watch include the 1.075 resistance level which, if breached, could confirm a bullish trend aligned with improving consumer data. Traders should also monitor any shifts or confirmations post economic data releases regarding consumer spending to gauge market sentiment.
Risks to this view
A significant deterioration in consumer confidence driven by inflationary pressures or geopolitical uncertainty could reverse the current positive outlook. If underlying demand were to falter significantly leading to revised consumer spending forecasts, this would challenge the desk's bullish stance.
~~~~~~~~~~~~~~~ Bank of America ~~~~~~~~~~~~~~~ Consumer Checkpoint: The great convergence After more than a year of a K-shaped economy, consumers are looking increasingly alike as wage and spending gains converge. Total card spending growth eased to 5.0% year-over-year (YoY) in July, from 6.3% in June, according to Bank of America internal data. But much of the moderation appears tied to the fading of temporary boosts (i.e., the timing of major online promotions and World Cup-related spending) rather than a broad deterioration in underlying demand.
Spending ex-gas still rose a solid 4.3% YoY. Click below to access our latest publication for a more in-depth look at these insights. You are receiving this email as a subscriber to Bank of America Institute Consumer Checkpoint.
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