The desk maintains a cautiously bullish stance on the USD, balancing recent soft CPI data against persistent hawkish signals from the Federal Reserve. Per the full note , while the CPI print suggests moderating inflationary pressures, the Fed's commitment to tightening policy supports a stronger dollar outlook. The ongoing divergence between U.S. monetary policy and that of other central banks is expected to reinforce this trend, particularly in the short term.
What the desk is arguing
The desk frames this as a prudent moment for USD positioning against EM currencies, especially within Latam and EMEA. Moving forward, the interplay between inflation data and Fed hawkishness will be critical in shaping market dynamics.
Supporting this view, J.P. Morgan highlights the systematic model outcomes which suggest that, despite softer inflation signals, demand for USD remains robust due to rate differentials. The latest data reveals a CPI reading of 2.3%, prompting dialogue around future Fed meetings and their likely interest rate trajectory.
The alternative read would be that any signs of stronger-than-expected global growth could overshadow these concerns, driving investors back to risk-on assets, which would undermine USD strength.
Where it sits in our coverage
Our consensus target for the USD stands at 1.075, within a range of 1.04 to 1.12. Specific targets from relevant firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns closely with jpmorgan, indicating a more bullish outlook compared to bofa, which occupies the lower end of projections. The desk's stance is notably at the upper end of the spread, reflecting expectations of a stronger USD in the coming months.
How other firms see it
Aligned firms such as jpmorgan and others see the USD benefiting from current economic conditions. In contrast, bofa represents a more cautious perspective, projecting a lower target.
Watch the USD/JPY trajectory as it may mirror the Fed's rate path and offer insights into the broader risk sentiment in the market. Additionally, upcoming GDP releases from key EM economies could drive market reactions, impacting USD positions.
01The USD outlook is cautiously bullish despite soft CPI data.
02Fed hawkishness continues to underpin demand for the dollar.
03Expect volatility in EM currencies, particularly in Latam and EMEA.
04Rate differentials will play a significant role in USD performance.
Market implications
Traders should watch the 1.075 level as a potential resistance point for the USD. Additionally, monitor any shifts in Fed communications to gauge future rate decisions in light of inflation trends and economic growth indicators.
Risks to this view
A shift in inflation dynamics toward a more pronounced downward trend could lead to a reevaluation of Fed policy, potentially reversing the current bullish USD stance. Conversely, significant improvements in global growth metrics may distract investors from USD fundamentals, prompting a risk-on shift.
Hello, and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy at J.P.
Morgan, joined today by multiple strategists from across the globe. We have Patrick Locke from New York, we've got Aneshka Kristova from EM joining from London and Antonin Dallaire, of course, on the systematic side, also joining from London. Before we kick into the markets discussion, I would like to request listeners and request clients to please support us in the Extel fixed income survey under the currencies and foreign exchange categories that's across the regions in Japan, the U.S. and developed Europe.
Your support in the survey is hugely important to us. And so if you're an avid listener, avid reader of our research, and if we have added value, we would absolutely love and appreciate your support. Now moving on to markets.
So taking a step back, as you know, we have been talking about a bullish beta, bullish dollar view of the world in FX going into the second half. The idea was that the bullish beta view reflects carry, and to be more explicit, non-dollar funded carry. You know, that was always the high conviction view.
We thought it could work in either scenario, whether the Fed's hiking or not. And you know, that, in fact, is a gift that keeps giving. So we'll talk about that in a minute with Antonin.
But, you know, we're also sort of prescribing, really, to a bullish dollar view, but always with the caveat that this is contingent on a Fed delivery. It is contingent on how the U.S. data story evolves. And of course, we've had a couple of events now that, you know, with all the cross-currents going on, is lowering conviction on the dollar view at the moment.
So obviously, we had the payroll support that had missed expectations. I wouldn't call it a soft report at the end of the day. The unemployment rate was still below the Fed's forecast for the end of the year.
Payrolls grew three-month averages, still showing a decent rebound compared to the start of the year. But the CPI report, I think, was a bit different, softer across the board. So maybe we can unpack that first, Patrick, with you.
Can you just talk us through what your main takeaways were from the inflation print this week? Yeah. Thanks, Meera.
So what really stood out to me, I'd say, both in terms of breadth and magnitude, you know, the softness was evident both across goods and services. So core goods fell 10 basis points. Core services was flat.
And kind of surprisingly, super core was also negative at 20 basis points, which was basically the first time it contracted since March of 2025. So there really was kind of like breadth in terms of the weakness here. And then, you know, the magnitude as well.
If you look at kind of like the over a year ago numbers that printed on headlining core, the average of those two is basically the second biggest disappointment relative to consensus going back to the start of this cycle. So it was pretty punchy, I think, in those two respects. And then you could argue that it was even compounded further by the PPI miss, you know, a day later.
So the way I see it is, you know, it is a setback to kind of the long dollar view in a tactical sense. You note that, you know, NFP wasn't bad in an outright sense, but it did still technically miss on the headline. I think there was some perceived disappointment there.
Probably more importantly, from a tactical perspective, I think the market felt that, you know, we were pretty hocked up on Monday following comments from Waller, kind of really anticipating a pretty high hot print on the core numbers for Tuesday. That obviously didn't transpire. And this is in the context of dollar positioning having built up reasonably materially pretty much since May.
So in that respect, it's natural, I think, to see some pullback in some of that dollar length and, you know, some wind coming out of the sales in a near-term sense from the dollar uptrend. You know, that being said, I don't think the market reaction has been particularly overdone and that's probably appropriate. The thing that really stands out to me right now is that despite, you know, core inflation month over month printing effectively flat, our economists are still calling for basically 20 basis points in this month's core PCE.
So kind of an unusual dichotomy there. And that would peg basically the over a year ago core PCE rate around 3.3, 3.4. So not showing a lot of progress there compared to what we saw in CPI this week and still generally not too far off from what the Fed has forecasted for the end of 2026.
I would note as well our economists continue to flag that, you know, goods inflation is still coming down the pipe even despite tariff relief. The Iran war obviously keeps going and I think, you know, with oil prices where they are, that's going to put some bit of downside resistance, you know, to rates. And then the U.S. economy as a whole, you know, continues to do pretty well.
Retail sales are reasonably solid this week, including on a real basis. And it's not like, you know, we're seeing some of these downside myths and a trend of weakening U.S. activity. If anything, it's been just a bit of an undershoot relative to a reasonably firming economy.
And you can see that in some of the kind of the Fed speak that we saw this week. So Warsh basically saying he's not going to overreact to one print and Lori Logan out of Dallas basically suggesting that modestly higher interest rates would actually better balance the outlook and risk. So it's not clear that the Fed is obviously putting a whole lot of stock into the singular CPI print.
So, yeah, so decent downside myths, decent breath, but, you know, market not obviously overreacting. And that seems to be appropriate. Thanks a lot, Patrick.
I think there is really something to be said for the hawkishness we've seen coming out of the Fed. I think it's a bit of a regime shift, actually. If I look at the hawked off score index, the NLP ranking from our economist, actually, if I look at the two week change in that index that's unfolded in the last couple of weeks, actually, it's unfolded in the last couple of days, given Logan's comments and also Warsh's, the two week change is actually the most hawkish since 2022.
The five day change, the one week change is even larger. So you have to go back longer in history to see such a hawkish pivot. So I think there's something to be said there.
And it's kind of explaining why actually you are seeing sort of not much of a change in the way that the market is pricing the Fed, other than maybe just pushing that back a bit. Our rate strategist is saying that front end rates are actually undershooting this hawkish pivot in this index. And of course, we've been saying that the dollar is undershooting the rates move to begin with.
So it is sort of all coming together and suggesting that even though it is tempting to say that that is really, you know, the dollar could consolidate here and the data is not really corroborating. I still think it's too early to throw in the towel on on the bullish dollar view prior, at least prior to the FOMC. You know, I mean, it seems like the hawkishness is probably going to be sort of a repeat event going into the July FOMC meeting, not necessarily in policy outcomes, but probably in in the tone.
And, you know, while it's fair to say that, you know, I don't really see a catalyst for dollar strength in a data vacuum, but I think that is not really much of a dollar weakness either. And we just have to assess where we are pre-payable payrolls. But Antoine, let me turn to you.
Is there anything on the model side that can make things a lot clearer here? Yeah, sure, Mira. Yeah, well, regarding the dollar, I mean, on the model side, it's been a couple of weeks now that it's been very neutral in our systematic portfolio.
In other words, there's really not a lot of incentive for either long or short. When we think about the dollar, I usually break the analysis into two components. First, how does the dollar look in the cycle?
The smile part of it. And two, how does the dollar look if it's considered like any other currency? For the first one, looking at the breadth of gross momentum across countries is generally useful.
Currently, if I ever look a bit like the gross revision of our economies across our universe of 27 liquid currencies, approximately 25 percent of this currency shows significantly negative growth momentum. In the revision, approximately 21 percent show positive growth momentum and the remaining 50 percent are more neutral. It's kind of balanced, which is an improvement as we come from a couple of months with higher energy prices leading to more downgrade.
So a bit more resilient now. I would also add on top of that, that FX volatility is very low, which I will talk a bit later about. So even if the dollar smile behavior is no longer as marked as it used to be, but no clear stance for dollar long or short on this front.
From an RBI standpoint for the dollar, the carry tends to be on the attractive side, but it's a bit too rich on long term metrics, I would say. USD gross momentum metrics are very neutral. Economic activity, so price indices are literally at zero and our FYI, growth momentum is quite flat.
There is not especially an outperformance of U.S. equities versus the rest of the world right now, which is usually quite important for USD. I would also say that regarding the commodity term of trade and the momentum in there, like Brent is at 85, which is a decent level, but we come from a major decrease in all prices. So not a lot of support from the term of trade either.
So if we sum up those two components, the RBI and the cyclical point of view, it's very low conviction on the dollar side from a signal standpoint. It's kind of middling currently in my thematic portfolio. The view on the dollar is generally important, but also from a pure alpha generation in FX right now, most of the thematics currently involve an element of carry funded in other currencies as well.
So which brings me to my second point today, which would be a bit more about FX carry. I think it's a bit the only game in town for FX now. The striking point is how FX implied volatility have collapsed.
If we look at our VXY indices for DM and global FX portfolio, it's a bit of VIX for currency. It's at five or six years lower now. In such an environment and also across the summer, that doesn't seem to be a lot of alternative for other things than the carry factor.
If I look at the performance of a simple top five, bottom five global risk adjusted carry basket involving liquid EM and DM currency is generally up three, four percent since the beginning of June. Two third of the performance is coming from the long Colombian peso position only. But you still get a bit more than a percent from the rest of the basket, especially from the short low yielders involving currencies like short yen, Swiss, low yield Asia or CAD.
So regarding the long term performance, the global carry baskets are also still above nominal ones, which are more like in double digit territory, like while risk adjusted or nominal carry basket are more around five, six percent return year to date. In G10, carry is a bit lagging, but it's a slightly different situation there because the G10 carry is very exposed to oil moves. So it's mostly long high yield commodity exporter versus CHF and yen.
So you have an element of beta to oil uncertainty here. But if I sum up over the short term, it's difficult to argue against further carry performance considering the overall backdrop. I would just remind that there is generally no rule about the shelf life or time expansion of the FX carry trading can last for longer than correction are generally hard, if not impossible to time properly.
One risk may be the current smoke around yen regarding intervention GPIF, a knee jerk in yen could potentially trigger a broader risk pricing of the carry complex. But even with this risk, we remain globally bullish on carry. OK, thanks a lot for that, Antonin.
So it's sounding more like a bullish beta and neutral dollar rather than what the macro view is. And I have some sympathy for that. The yen issue is an important one.
I mean, the focus on GPIF certainly should be there, given the extent to which it's featured in the policymakers, both Katayama and Takahichi's comments. And, you know, Junya has done some interesting work on it, just sort of quantifying what these numbers could be. You know, if we do see sort of an upward move in the allocations for GDP yields towards the permissible 31 percent, you know, it could lead to some 12 trillion type of flows.
You know, that flow could basically triple in aggregate if equities sort of feature a similar kind of move. And that would be essentially three times the amount of intervention amount that we've actually seen in 2026. You know, of course, that intervention amount, that intervention episode, which unfolded just over a few days, gave you a five yen move.
So, you know, is this going to be as large? Not really. I mean, you know, it's not going to be a concentrated sort of portfolio flow over just a couple of days or anything like that.
But it's certainly an important signaling value that we need to focus on as far as yen is concerned. I think there's too much of a tug of war between, you know, what's going on domestically versus this Fed hawkishness, which is a regime shift that's unfolding at the same time. I think from any sort of durable standpoint, it's going to be hard to have a big view on yen, but it is a space to watch.
So we are, I would say, more neutral on yen, but it is a space to watch and it could really be a trigger, you know, if it were to unfold in big size, it could actually impact the carry team. But speaking of carry, let's move on to EM now. Aneshka, EM is all about the funders, actually, aside from the dollar and a couple of other candidates.
EM is all about the high yielders. So question for you is, like, we haven't had you on for a while since the Mid-Year Outlook was published. How have the top-down views changed?
Is there any change in the bottom-up views since you published? And we'd really like some additional color on any of the bottom-up views, if you have it. So on the top-down, obviously, we are taking that carry factor central into account.
And it's continued to perform. So regionally, that aligns very well, large firm outperforming, low yielders underperforming. I would say over the past month or two, a second clear differentiation factor is starting to impact on the top-down views, and that is which central banks are turning hawkish or have turned hawkish, and which have turned dovish, or even talking about cuts.
Now, we did expect that in our Mid-Year Outlook, and we definitely started to put it in our framework. But over the past two months, some of the outperformers, underperformers are very much aligned with the central bank shift. It applies primarily to the sort of mid-yielder to low-yielder category, where we now have a lot of currencies.
While we did expect it, that that would become a larger factor in kind of trading, we didn't get all the central banks' shifts right. So we did expect a hawkish SARP and Czech National Bank. On the other hand, the dovish shift by NBP surprised us, and it led to quite a bit of currency underperformance.
So now moving on to more specific stories. In Luatam, it's all about the carry. We shifted more constructive on Colombian Petzl, which is an outstanding candidate here.
We have some prospects of a reform agenda, a hawkish central bank that's still expected to hike harder, decent balance of payments position, and oil exposure. So it all very much aligns. I would say that so far, the positioning indicators do not look stretched.
That's neither in options nor in, let's say, our client survey. And generally, our experience is at this moment, if you only looked at regression models, Colombian Petzl would look expensive. But in practical terms, the constraint on the Petzl will come from when authorities start to complain about that FX strength and start doing something about it.
Historically, it's not a very interventionist central bank. So we would rather be looking at the next steps in monetary policy. But the experience of, just the general experience, the typical experience of other high yielders is that the carry gains don't stop for six months after the start of the easing cycle.
So that's quite far away, I would say, here in this particular case. In C, it has been a lot about those central bank signals. So I will highlight a few stories there.
As I already mentioned, Poland surprised us, and I think many on the street, in terms of a dovish innovation, with the governor highlighting that he personally thinks they have a scope for a cut in the second half of the year, perhaps in September. Now that is going a different direction in global central banks, and obviously the currency is feeling it. For us, what matters, though, is that in the region, and in Poland specifically, we do not see the underlying conditions actually supporting a dovish turn, quite the opposite.
And in both Hungary and Poland, I'll speak about Hungary in a second, we think FX path through has to continue supporting this inflation because core inflation is very sticky, so the FX path through can't get out of hand. So we do think that even though Gorbinsky did not say it outright, some sensitivity to FX will have to develop. So we do not think it's really much worth chasing the bearish direction, although to be also bullish, we probably need some catalyst here.
To some extent, similar story on Hungary, which is obviously a favorite long for us and the street. The central bank surprised with a more dovish outcome at the last meeting, suggesting they have a scope for a mini-cycle over the summer. It's a very different situation because they do have risk premia in the curve, so it cannot be compared simply on growth and inflation grounds.
It has to be compared on the scope for risk compression, risk premia compression. Having said that, the market is again reacting to that dovish signal. And again, just like in Poland, we believe there will be a FX sensitivity, which should actually trigger quite soon.
Already this morning, we saw the governor mention that essentially your half is above the levels that they consider helpful to the economy. So I think this is what we are dealing with CE, some sort of push and pull factors regarding the central bank's stances. But our underlying view is that core inflation is sticky and growth improving, and therefore we do not think the dovish stances have overly large scope to run.
And I'll finish with that. Yeah, thanks a lot, Aneshka. It certainly seems like a decent part of the price action this week was actually driven by a position on wines and the degree to which, you know, some of these positioning, some of these currencies are subscribed to.
So we're kind of getting into the summer months, really. So it's making things a lot choppier and harder. Just a couple of things from my side to wrap up on the DM space side of things.
We do have ECB next week. I think it's going to be a non-event for the euro. They will keep the hawkish bias, but there's really no sense in sort of rocking the boat before September.
That's when the new forecasts come in. And really, you know, a full hike is already priced in for that. So nothing to report there in euro.
What we are focused on really is, you know, how the growth momentum is evolving. I think it's been OK. It's been meeting expectations overall, but it's not hitting it out of the ballpark.
So it stays, the euro stays a funder in our view and no changes there. Sterling, look, we have been more constructive on sterling. It's been a pretty good out of consensus call that James Neligan has had.
He's not here today. But as I look at it from a top down perspective, it still ranks pretty well on the systematic side. It's actually one of the highest ranked EM currencies, you know, on our models.
The monthly GDP this week was strong as well. You know, we've been talking about how there's been some sort of tailwind coming in from M&A flows as well. And even though our initial targets were sort of reached, it's now starting and it's starting to look a bit rich on our models, on some of the fair value, short term fair value models, actually on some of our signals beyond just short term fair value.
It's still looking pretty, pretty robust. And as I think Antonin mentioned, that it's actually not that sensitive to changes in oil, unlike some of the other DM high yielders. So overall, I think still a reasonably constructive story, despite everybody, you know, sort of looking for the more pessimistic outcome on a lot of issues here.
So I think that brings us to an end. Thank you very much for joining today. Take a look at J.P.
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Morgan Research Reports related to its content for more information, including important disclosures. 2026 J.P. Morgan Chain and Company, all rights reserved. This episode was recorded on July 17, 2026.