Global FX: Dollar oscillates; more fiscal clarity for GBP & CAD
The desk posits that the US dollar is currently in a state of oscillation, influenced by various domestic factors, while also highlighting emerging fiscal clarity for GBP and CAD. Per the full note from J.P. Morgan, the dollar's fluctuations are closely tied to economic indicators and fiscal policy developments. The commentary underscores that the outlook for the euro remains cautious amid these dynamics. As traders navigate these waters, understanding the interplay between US fiscal policy and global currency movements will be crucial.
What the desk is arguing
J.P. Morgan's Global FX Strategists analyze US factors influencing the dollar, the EUR outlook, and recent UK & Canada budget developments. They likely see fiscal clarity supporting GBP and CAD, but no explicit levels or trades are given.
Where it sits in our coverage
No internal coverage data available for the relevant currencies; we cannot provide consensus or firm spread.
How other firms see it
No other firms mentioned in the source commentary.
Key takeaways
01J.P. Morgan discusses US factors driving dollar volatility.
02UK and Canada budget developments may provide fiscal clarity for GBP and CAD.
03EUR outlook is also covered, but no specific levels are provided.
Market implications
The commentary is neutral and descriptive, implying no immediate trading bias. Dollar may remain range-bound, while GBP and CAD could see support from fiscal clarity.
Risks to this view
Unspecified US policy shifts or negative budget outcomes could reverse fiscal clarity for GBP and CAD. EUR faces downside risks from Eurozone weakness.
Hello, and welcome to this week's At Any Rate podcast. My name is Pat Locke. I'm on the Global FX Strategy team.
I'm joined this week by our co-head of FX Strategy, Meira Chandon out of London, and my colleague, James Neligan, also out of London. A bit of volatility in risk markets this week, and that comes against the backdrop of the dollar DXY going up about 1.8% or so over the last week. Hard to confer some causality necessarily there.
It wasn't exactly clear what sparked the weakness in risk markets, but certainly it's been interesting to observe pockets of risk off, dollar up, some of that left-hand side dollar bid that we're traditionally used to, but hasn't obviously been evident at all points this year. The data we did receive this week was mixed. We got some good data on the U.S. side.
The optimism outperformed across all respects, including a high prices paid number that hit the 70 handle. So quite strong higher yields there as well. ADP came in a little bit better than expectations.
But I think what really caught the attention of most people was more of a tier two challenge or release about U.S. layoffs, which showed quite a material jump in October. So a bit of cross-currents manifesting in the U.S. data that contributed to some of the up-down price action and some of the volatility and risk markets that we've been seeing this week. And then of course, this comes against the backdrop of the U.S. shutdown, which has now set a new record in terms of its duration.
There was some optimism seemingly early in the week that perhaps we were nearing the end of the tunnel. I think certainly there's been a lot of consternation around what's happening with U.S. flights. That I would say is also kind of the circuit breaker that ended the shutdown in 2018-19.
So it seemed like perhaps there's a little bit of bipartisan momentum to try and to address that. But we had some local elections here in the U.S. and perhaps that threw a little bit of a wrench or some cold water on that progress. So it's still not exactly clear if this is going to end in the next week or so, which I think is interesting and important.
Obviously, so far, the dollar has withstood for the most part the shutdown. But it does seem like, especially now with flights being actively canceled by the FAA, it does seem like perhaps the negative GDP implications here are starting to grow a little bit more obviously and more in a way that doesn't necessarily pretend the kind of like obvious payback in the first quarter on the reopening that you might otherwise expect. So I'd say probably downside risks to the dollar from the shutdown are probably growing a little bit more obviously now.
So we'll see how kind of that continues to go. But hopefully, you know, we get some degree of resolution in coming days. But with that, Meera, you know, I'll pass it to you.
We've seen quite a bit of volatility in euro dollar of late. We touched 14 handle this week. How are you seeing things, you know, from your side of the picture?
Hi, Patrick, and thank you. And before I before I do talk about the euro dollar view, I should just make a shameless plug here, which is for JP Morgan clients only. We have published a note this week that sort of thinks through and discusses what the various transmission mechanisms from AI and the tech spend and the adoption could be for the dollar and for effects more broadly.
We won't be discussing this on on this public forum that's predominantly for our JP Morgan clients only but do reach out and take a look at the website for that research and do reach us to reach out to us individually or to the Salesforce to set up meetings to sort of discuss that. But that's that's going to be obviously a big team for the coming years. Now on euro dollar, what Natalie, I mean, I can't say that, you know, that I understand the price action fully.
I mean, I'd say, I don't think you can call the price action surprising, but still, I'm puzzled by the magnitude of it. I mean, first thing I'll say is that we don't really have a clean read on US data. So yes, Paul was hawkish and the US economy has been more resilient on some metrics than had been projected, certainly, but, you know, the big question in my mind is really how much can markets and the dollar in particular extend if you're flying blind on basic growth and labor markets data.
So yeah, the dollar should have strengthened a bit given these developments, but I always thought there would be a limit to this move then. And that actually you've got a pretty narrow shelf space for these moves to run. And they are self-limiting in nature without that data.
The second is where we do have the data, which is which is in Europe. And I think as we spoke about it the last podcast as well, you know, the last set of PMIs that were released out of Europe were pretty big confidence booster for somebody who's constructive in Euro like myself. I mean, you know, this kind of reinforces that the growth story is very much intact.
I think you're getting these sort of pro cyclical signals globally. And, you know, the backdrop is growth momentum looks pretty strong everywhere. And Euro at the end of the day is growth currency.
So one should be bullish on that. One should be bullish on high beta currencies as well. Now, should Euro dollar break out of its range on the upside?
And, you know, can we get to our upside 122 kind of estimates here without a slide in US data? Not really. I mean, you know, it's going to be hard to see a break, but I think, you know, with these ranges, if you're talking 114, 115 on the downside to something like 119 to 120 in the limit sort of on the upside, that sort of range continues to stay.
And, you know, if you're at the 115 and below level, then your risk reward changes quite a bit within that range. So that's the approach we're taking. You know, it is a pro cyclical environment.
I can see taking a step back as well. I mean, we're almost going into mid November at this point, only a few weeks away from year end. And I can see why conviction levels in FX could be low among market participants.
It's been a tough year on macro. We're sitting here on the cross section of many macro themes. And we're getting into year end, which is a less liquid time for markets.
So I can see the case for clients reducing risk overall. But if I take a step back and look at this, the fundamental pro cyclicality story and the story for growth currencies, the auto included hasn't really changed much. So still sticking with that for now.
Thanks, Meera. I guess by contrast, the UK and Sterling specifically has had a few more obvious discrete catalysts to drive weakness. We've had obviously a pretty good move lowering Sterling has broadly underperformed the V10 complex over the last month or so.
James, we had the BOE this week. And obviously, that's against the backdrop of kind of a drip feed of noise around kind of the budget, the long awaited budget, which is doing a few weeks now. You know, how are you assessing the landscape, particularly kind of like after the pretty notable underperformance from Sterling over the last month?
Sure. Yeah, thanks. Thanks, Patrick.
So, you know, I think we've had a series of trial balloons from the government on potential policy options for the government. We had the speech from the Chancellor this week. You know, Eurosterling made I think new year to date highs this week.
And I'd say that the interesting thing there is that, you know, income tax has been floated as one of the kind of less bad options for Sterling in terms of the budget. And yet, ever since that was floated in the media as one of the main policy options, Sterling has actually weakened. So, we're seeing the reaction function more along the lines of kind of any news is bad news in terms of the way Sterling has treated and traded on the trial balloons, rather than differentiating between policy.
Because at the end of the day, you're still going to get a meaningful tightening in fiscal policy, which is going to bring the Bank of England into play, as we saw yesterday, you know, I think the Bank of England trying to position themselves for a December cut and potentially trying to position themselves for a more meaningful shift on the dovish side if, you know, if they if they see the evidence come through, obviously, they can't act before the budget. So there's still channels for Sterling weakness. But what I'd say is we're coming into the period now, it's going to be, you know, the couple of weeks before the budget where tactical positioning is going to become more relevant, you know, wargaming the budget scenarios, some investors, you know, are going to maybe view this as a bit more of a binary event, maybe not ourselves, but that doesn't stop the market from thinking about it that way.
So we're toning down the kind of bearishness on Sterling, I'd say, for the next few weeks on a tactical horizon, you know, with the currency's done a fair bit. And we think we're just getting into that period now where it's where it's going to be. Let's focus on the event and see where we come on the other side of it.
And as I say, there's still a world where if you get poor budget delivery in terms of, you know, what the fiscal shortfall is and what that's made up of in terms of tax policy options, plus Bank of England coming into play, there's still a Sterling downside scenario from here. But we're also open to the possibility that, you know, this could at some point look quite well priced. And, you know, the recent UK data has been, you know, remains quite resilient.
So, yeah, I'd say the overall message is, you know, we've run this bearish view on Sterling for, you know, all year and longer than that. But, you know, we've particularly been focused on fiscal risk premium over the last over kind of the summer. And we're turning it down here just on that kind of tactical horizon.
Thanks. And I guess, you know, as an extension of the fiscal theme, I mean, Canada released its own budget this week. It was also highly anticipated, if not quite to the degree of the UK.
I thought the market response was quite interesting. I mean, on the immediate a $78 billion budget gap deficit this year, just a couple percent of GDP, give or take. Yield actually fell, which to me basically indicated that the market was basically pricing in some degree of risk premium for more of a bazooka style delivery.
Obviously, Prime Minister Carney has been talking a big game throughout all this year, in part, you know, what's gotten him elected, kind of a strong government response to the trade actions coming out of the US. But it seems like the numbers that were actually delivered, nevertheless, fell short of that kind of like upside risk that the market was kind of skewing for. And so again, kind of like on net yields fell in Canada.
And you could kind of see maybe some marginally weakness, but not a lot. I do think that's interesting. I mean, I think at the end of the day, the way I see it is, as the BOC kind of reiterated last week, Canada is slated to operate in excess supply for the better part of the next two years.
And essentially fiscal is its most kind of like, most useful, most poignant when you are operating in an environment of excess capacity or with slack, you get that government support, you don't get the crowding out necessarily. And it's not necessarily inflationary, either or less so than when you're running at full capacity. So the way I've kind of been thinking about this then is that I think it helps put something of a floor under CAD and the Canadian cyclicals looking into next year.
Obviously, Canada has been disproportionately affected by the trade war this year. And CAD has subsequently alongside the dollar been kind of a G10 FX underperformer. So I think the budget, even though it may have disappointed some people, I think it's still a decent size overall.
And again, I think that helps maybe put something of a floor under CAD. So maybe you're not going to get that kind of like outsized FX weakness. Now, that's not to say it's going to outperform either.
And again, if we are operating in an environment of slack, I don't think it necessarily requires pulling forward like BOC hikes or anything like that. So maybe we just see a little bit more consolidation in CAD, but that still renders it to me like a decent funder if it's just kind of a low of all policy rates at two and a quarter, obviously much less than the US. So I think there's definitely still some headwinds confronting CAD.
And there's just, I guess not a lot to get excited about since there wasn't over delivery necessarily on the fiscal. So not a ton has really changed for us on the CAD view, but it's nice to have a little bit of understanding around the parameters about what the government's going to be delivering specifically since they skipped kind of like the spring budget slash update. So that's kind of where we're at on CAD.
I think we'll leave it there for today. Thanks for listening. This communication is provided for information purposes only.
Please refer to JPMorgan research reports related to its content for more information, including important disclosures. 2025 JPMorgan Chasing Company, all rights reserved. This episode was recorded on November 7th, 2025.