Global FX: EU deep dive, US roundup, back to school themes
The desk interprets the latest commentary from J.P. Morgan as reflecting a crucial moment for EUR/USD dynamics influenced by growth and fiscal developments in the Euro area and upcoming U.S. economic indicators. Per the full note, the conversation underscores a resilient Euro amidst lower yields, signaling potential instability for the greenback. The ongoing narrative positions EUR/USD to engage with a carry trade bias as fiscal policies unfold both in Europe and the U.S. Their mention of critical U.S. events — particularly inflation data and payroll figures — highlights catalysts likely to impact trader sentiment through fall. Given the current spot at 1.1446, our consensus among firms has a median target of 1.1700, with a range of expectations spanning from 1.1200 to 1.2000.
What the desk is arguing
The desk clarifies that the commentary from J.P. Morgan suggests that the Eurozone's growth and fiscal strategies are pivotal for the EUR/USD's trajectory. This analysis emphasizes carry trades as fundamental to navigating market volatility in response to fluctuating global yields and economic metrics.
Notably, the Federal Reserve's approach to inflation metrics, including PCE, and upcoming payroll data is expected to influence market positions significantly. J.P. Morgan's commentary posits that monetary policy adjustments on either side of the Atlantic could substantially shape directional momentum for the EUR/USD pair.
Where it sits in our coverage
Our current consensus target places the EUR/USD at 1.1700, with individual firms reporting slightly different forecasts by December 2026: - tmgm: 1.1450 - investec: 1.1700 - rbc: 1.2000
This viewpoint offers a moderate collaboration with prevailing sentiment, particularly aligning closely with estimates from investec and rbc, which occupy the higher range of predictions. Such positioning reflects optimism about the Euro's resilience.
How other firms see it
Aligned firms such as investec and rbc reinforce the bullish sentiment for the EUR/USD, with targets at or above 1.1700. In contrast, danskebank presents a lower forecast of 1.1100 for December 2026, signaling skepticism regarding Euro strength.
The anticipation surrounding U.S. inflation metrics and labor reports could serve as significant flashpoints that impact both the EUR/USD and related pairs like USD/JPY or AUD/EUR in the upcoming weeks. This suggests traders should watch correlations closely as developments unfold.
01J.P. Morgan highlights growth dynamics in the Euro area as critical for EUR/USD performance.
02U.S. events, including PCE and payrolls, are poised to create volatility in the FX market.
03Carry trade themes are emerging strongly in current market sentiment.
04Current consensus for EUR/USD stands at a median target of 1.1700.
Market implications
Traders should closely monitor the PCE and payroll data due in the coming weeks, as these events could drive significant movement in the EUR/USD pair. The current spot level of 1.1446 remains under the consensus target, indicating a potential upward adjustment.
Risks to this view
A shift in U.S. monetary policy, leading to a more hawkish stance from the Federal Reserve than currently anticipated, could adversely impact the Euro's strength. Similarly, any signs of economic weakness in the Eurozone could destabilize bullish sentiments for EUR/USD.
Hello and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy.
J.P. Morgan, joined today by our head of Western European economics, Greg Fazzese, and also senior FX strategist, Patrick Locke of New York. So look, we've had a pretty good feedback on the last two FX podcasts where we did debate corners.
But this week, I want to steer away from that kind of format. We've had quite a week on the macro fund, at least till Friday morning, and we're getting into the long weekend. So we've just had a bit more time for introspection.
So I think it's a good week for actually a deep dive instead of debate. And so I want to focus on one topic in particular today, which I think has steadily grown more entrenched in recent weeks. But it's been a bit overshadowed, I think, by what's going on in the U.S.
And that's the steady improvement in the macro story in the euro area. So for that, we have Greg Fazzese on. And then once we're done with that sort of deep dive on the European side, I will shift to FX discussions, talk a bit about our back to school FX themes as we get into the first week of September, and then end with a roundup of U.S. events this week with Patrick Locke, which includes the data, of course, for BCE and then the Jackson Hole as well.
So let's get started. Greg, let's start on the growth question, because I think from an FX standpoint, that's the most important thing. Now, if I look at different metrics, you know, they're all actually pretty positive.
Our economic activity surprise indices that our team puts together is sitting at three and a half year highs. The data is beating consensus expectations. I've been tracking your growth forecasts in the FRI index that we have, and it looks like half the growth downgrades after the U.S. and Iran conflict.
You've taken them out now, which is quite astounding, really, with TTF-Cas still sitting at the highs, actually heading towards 70. The PMIs have rebounded. So can you break this down for us?
What's really driving this growth uplift? Is it a broad-based, across sectors, across regions? And where do you see things going from here?
I mean, we came into the year with a pretty constructive view about your area of growth. You know, over the last couple of years, you did actually grow around a 1% pace, which, you know, is in line with potential, despite the trade war and everything else. But we expected this year some of that trade war uncertainty to fade and German fiscal policy to kick in.
So we had a forecast where your area of growth would accelerate to about 1.75% by the second half of this year. Of course, the Iran war then came along and created new uncertainties and also very tangible pressures through higher energy prices. And that prompted us to take our forecasts lower.
And then some investors were also concerned that, you know, a region was already fragile, and then higher inflation would prompt the ECB to hike rates, and that would kind of kill things off completely. But, you know, we, in terms of our own thinking, we started off with this constructive view that growth would actually go above potential. And I think that is actually still tracking, but combined with more smoothing on the consumer side and on the corporate side as well in response to the Iran shock.
So energy prices have gone up a lot. They've ebbed and flowed a bit, but now are back, you know, close to some of the recent highs, especially on natural gas. But the incoming data is still very solid.
In fact, if I look at the last kind of three quarters, there's actually been some acceleration from this 1% baseline that we had in the prior two years. So PMI signal currently 1.4%. The average of the last three GDP prints is on an ex-island basis around 1.3%.
So, you know, it is above potential. And the striking thing for me is that the pickup in the PMI in July and August happened despite the reintensification in the Middle East. So if you take a counterfactual without that reintensification, perhaps, you know, the indicators would be even firmer.
So we had a good baseline and, you know, it seems to be coming back into focus. You said that we've reversed some of the forecast changes. I would actually still say that the near-term risks are still tilted higher.
And then in terms of the details, it's actually coming from quite a few different areas. So there isn't sort of a standout growth driver, but different parts of the economy are chipping in. Germany's now gone from stagnation to growing around 1.5%.
The consumer is smoothing and spending. Some of the corporate indicators are better, but also exports. If I look at Germany, the first half of this year, exports are up 9% annualized.
So, you know, a lot of structural challenges and problem areas, but the data are holding up. 1.3% or 1.4% for the Eurozone as always gets people excited. So I know it's not a lot, but it's a lot for the region. So that's good news.
But can we just dig a deeper into the fiscal side of things? I mean, this was the big story 15 months ago when we got the German U-turn. And I know there was a lot of skepticism around really how that would take hold and what the quality of spend will be.
Is it going to be towards productive or unproductive users? So how's the fiscal tracking? What are your favorite metrics there, by the way?
And how do you think that's impacting the growth story in the region? Yeah, I mean, the striking thing is that Germany stagnated for something like two and a half years at the GDP level and then Q4 last year and first half of this year, back to 1.5% growth effectively. The deficit, if you look at the national accounts, so on the Maastricht definition has widened from close to 2% to around 4%.
So there is delivery there in terms of the deficit numbers. I tend to divide up the German fiscal story into three parts. One is defense.
And I think there the news is still pretty good. There's momentum behind the flow of orders. You can see it in the monthly industrial orders report.
And also in the PMI, there was a reference by companies saying that some of the big acceleration in manufacturing, the manufacturing out of PMI Germany has gone up six points over three releases, was partly about defense spending coming through. So that part I'm very, very comfortable with. The second part is infrastructure, which is a bit of a kitchen sink of anything with shelf life.
I mean, it's not just roads and railways, but it includes digitalization, hospitals, education, other things. That's much harder to track. Money is flowing.
So they are raising money for the infrastructure fund. But in terms of where that is actually showing up is a bit harder to to track. And some of the construction indicators are still not lifting in a very clear way.
But I think the political pressure to make that work is big. So I don't doubt that that's coming as well. And then the last bit is the reform effort, which I think is key for business confidence.
And there I think the German government has managed to change the narrative a bit with a pretty bold reform of the pension system that they agreed on and now need to get through the Bundestag. But I think the narrative around some of these more structural changes is also starting to improve. So I would say it's tracking pretty well.
And in a way, the GDP data are proof that something has certainly improved on the German side. Okay. But Greg, on the fiscal story, can you put some numbers on that in terms of is the deficit spending or is the deficit the right number to look at in Germany?
Or is that a fiscal thrust number or like the contribution to growth? If you had to put a number on it or some numbers on it, what would be your preferred metrics? Yeah.
I mean, let's keep things round. I mean, the deficit overall has gone from, you know, has widened around two percentage points. That is also my estimate of by how much the structural position is widening over a kind of one and a half year type period.
So that's tracking. The multiplier, you know, we'll see because some of it also depends on private sector buy-in. And that's where the reform story is particularly important in raising the private sector's confidence in Germany as an economy still having a future.
But I would say the fiscal multiplier should really be kind of quite close to one, probably a bit lower, but not much lower. So, you know, kind of a 2% widening of the structural position with a multiplier close to one. I mean, you are getting a GDP impact of close to 2%.
You know, let's say spread over a year and a half, two years. That's pretty punchy. And that's for Germany specifically, right?
Yeah, yeah, yeah. Not for the region as a whole. No, the others are under pressure to still consolidate.
So, you know, everyone's trying to do more on defense, but most of the other countries are trying to absorb that within their overall budget plans. Okay, that's great. Thanks.
Thanks for that update. And then let's move to the last topic, the inflation discussion. And I think this is mostly tracking in line with ECB's expectations.
But how are you seeing this evolve going forward and any blowback to ECB at all? So, on the ECB, the growth numbers are surprising them on the upside. Very, very clear.
I think on the inflation side, the data are coming in a bit closer to their expectations, which is above target. And therefore, I think combination of stronger growth, which reduces the risk of hiking, because you're less worried about it choking off the economy with above target inflation. I mean, it just makes a September hike an absolute no-brainer.
I think that that's almost a done deal. I'm still dragging my feet a bit about beyond September, just because, you know, some of the mix in the inflation numbers haven't been entirely clear cut. The pricing surveys in the business surveys are starting to come off again, despite the reintensification of the energy price story over the last couple of months.
So, you could say that there is still this possibility that a Goldilocks type scenario reemerges, which is what we had as a forecast before the Iran war. So, yeah, I'm still dragging my feet in terms of whether they will deliver a third hike or not. But September is a done deal.
Yeah, so that's what I would say on that. I mean, Mira, if I just, given that we're on a back to school theme here, given everything that I've laid out on the European growth side, and ECB, where does that leave you and your thinking in terms of the exchange rate versus the dollar? And what are your key themes as we head back into business as usual post holidays?
Yeah, I mean, FX is kind of interesting. It's been interesting all year, actually, but I think the dollar is just stuck in tight ranges. But, you know, let's just start with the euro dollar, since you've laid out a pretty positive story on the region.
And look, to me, euro has always been and continues to be a growth currency. So the growth story you've actually highlighted is the most important piece of the puzzle for me. And if we're quibbling about whether the ECB is hiking once more or twice more, it's sort of less meaningful for the currency in my mind.
If growth is good, that already sets up the currency in a very good stead. And, you know, obviously, if I compare it to the US, like I said, the European easies are actually quite positive at that three and a half year highs in the euro. But the US, you know, is close to neutral, i.e. it's doing, you know, it's doing fine.
It's doing well, but it's not really beating expectations that massively. So I think there is a gap here that we have to be mindful of as FX strategists. And normally, a pro cyclical narrative like this in the region would be quite important to me.
But there are a few things, a few concerns that makes me sort of less constructive on the prospects for euro dollar right now. I think the risk reward is not particularly great. So first thing I'll say is the US is also looking pretty resilient.
You know, we'll see what payrolls do next week. But the market is still pricing in a hiking bias for the Fed. You know, and that's what our economists are looking for as well down the year, later in the year.
So I think that is something that kind of holds off a sort of broad based dollar weakness, if you will. And if I were to actually second point is that if I were to broaden out that growth lens that we've just talked about, growth is actually holding up very well globally. It's not just an European or US phenomenon.
Actually, if I were to rank, you know, how growth forecasts have changed globally, eurozone is actually in the middle, more middling relative to some of these other candidates where we see growth revisions being a lot larger, especially adjusted for historical volatility. So that's that's one thing that's on my mind as well. When I look at the global picture.
The third thing I'll say is the carry deficit in the euro is still a problem. It's a low yielder on the trend scheme of things. And then finally, you know, valuations mismatch is very much still a story for for euro dollar in particular.
You know, if I look at where energy prices are and of course, ETF gas, you know, still at the highs, as I mentioned at the start of the podcast, to me, fair value for euro dollar, given that the fair and easy to be surprised where energy prices are, you know, fair value on some of the short term models is closer to 110 or 113, you know, basically pretty far away from where euro dollar is right now. So to me, you know, at these levels, the risk reward is just not there. Don't get me wrong.
If the Fed terminal does end up going down, euro dollar will end up strengthening, no doubt about it. But it's just like, I don't think this is a great sort of level to be chasing this move higher. I ultimately see euro dollar in tight ranges.
And to me, in the grand scheme of things, global scheme of things, I prefer to use the euro as a funder versus other higher yielding pro cyclical currencies, which brings me to the second point. Like I said, you know, the back to school team. So what do we have a high conviction in at the moment?
And I've been emphasizing these in our latest publications in the podcast here. To me, the single biggest theme is the pro cyclicality and its global pro cyclicality. Growth is good everywhere.
You know, rates are going to be high for long yield gaps on carry baskets are wide. So that to me means that carry baskets in effect should continue to outperform. They've already delivered to 7 to 12 percent year to date, but there's no reason why that can't continue.
And in particular, within the carry theme, I still like the DM funded EM carry, you know, which is why the euro as a funder kind of fits in well there. So and by the way, from a positioning standpoint, I don't actually think it's that crowded. So talking about specific candidates in the developed market space, Aussie and Noki still like that quite a bit, you know, more on the constructive side for those.
The dollar very much can fit in very well on the high yielder side and on the DM side of things. To me, the funders, you know, I mentioned euro, but Swiss, I would say the Swiss franc is probably one of my favorite funders. And I'd say the only exception I'd make on the low yielders is is really the yen, which, you know, we have a very tactical sort of window here where certain policy issues in Japan could actually make it do pretty well versus other low yielders.
So aside from yen, I would say the low yielders on the DM side, Swiss franc, stocky, CAD, euro, we like using those as funders. And on the EM side, you know, our EM team, Anushka, you know, has been quite constructive on, say, MEX and COP and LATAM, you know, Hungary, HUFF and TRY and EMEA. But also within the EMEA space, she's also been emphasizing this growth story, Greg, that you laid out around, you know, currencies like Czech, where they are higher beta than the German story.
So should, you know, should lean quite constructive. So I think on the broad dollar neutral here, you know, I think it's just, you know, premature to chase the dollar sort of bearish view here due to valuations and the Fed maintaining a hiking bias. But I think carry by far is going to be the biggest sort of pro cyclical theme as we get into September.
So that's it for me. But, you know, let's let's sort of end this podcast. Let me hand over to Patrick, because there have been quite a few key US side developments this week.
We've had the core PCE. We've had other US data. We've got, obviously, Warsh, Jackson Hole, and we've got payrolls next week.
So maybe Patrick can help break that down for us. So handing over to you, Patrick. Yeah, thanks, Vera.
So, yeah, so we just had Jackson Hole come and go, obviously highly anticipated. I think we got a lot more information from the chair than we probably had expected. And I think the market response is pretty clear here.
Obviously, dollar positive. I think really the kind of the most interesting insight for me is the shape of the curve. We've had twos higher, tens, thirties a little bit lower.
So you've basically had a bit of a twist flattening from pre-speech levels. That, of course, is kind of the mirror image of what happened after the July FOMC press conference when the dollar was sold very hard. So it's not surprising to me to see the inverse of that for the dollar.
Basically, a nice rally against the entire complex, essentially. And then so on the back of that, we've also had a bit of a repricing for the September FOMC. We were kind of trading 8 to 10 basis points of premium through the middle of this week.
That's moved up closer to 12-ish now, it looks like, on the screens. So basically looking at kind of more of a 50-50 toss up into the meeting. And I think, you know, connecting that back to the speech and what else happened in the U.S. this week in terms of data, the chair did kind of acknowledge pretty solid data in a general sense, tilting a little bit more sensitivity as well to the inflation side of things.
And in terms of like the data we got this week, core PCE came in 25 basis points, still pretty firm in a general sense. And when you think about it on like a more of a momentum basis, three months, six month annualized, still hovering in that 3 to 3.5% kind of territory, which the chair seemed to kind of acknowledge wasn't really consistent with what they're trying to achieve here. So that plus, you know, solid data on things like, you know, claims still running really low.
We had flat real consumption, but nevertheless took up our consumption and GDP forecasts for the third quarter this year to about two and three quarters. Everything's looking pretty solid overall. So I think that definitely keeps, you know, the September pricing live.
And we've been talking here about, you know, how the DXY has been actually quite well correlated to September pricing. So a lot now resting on payrolls and CPI before we get to the September meeting itself. And I think we're still kind of like collating our expectations on NFP.
But right now it looks like consensus is around the 50k mark, 4.1%. Not exactly clear if that's delivered, if that'll move the needle a whole lot. And so it's still a lot to play for, I think, on the backup CPI.
But, you know, nevertheless, you know, some pretty material developments here out of the U.S. And they've proven pretty dollar positive this week. I think I will leave it there for this week.
Thanks very much, everybody, for joining. This communication is provided for information purposes only. Please refer to J.P.
Morgan Research Reports related to its content for more information, including important disclosures. 2026 J.P. Morgan Chase & Company, all rights reserved. This episode was recorded on August 28th, 2026.