Global FX: Payrolls a setback to USD; still constructive on carry post-JPY intervention
Lead — The dollar appears under pressure following disappointing U.S. non-farm payroll data, which raises concerns about growth and inflation outlook. Per the full note source, the desk interprets the weak jobs print as a setback for the dollar's tactical upside amid mixed economic signals. The focus is also on the resilience of carry trades, particularly following recent JPY interventions. With no major catalysts on the horizon in the coming month, market participants may navigate these headwinds cautiously.
What the desk is arguing
The desk argues that the recent non-farm payroll (NFP) numbers signal a significant setback for the U.S. dollar, primarily due to the weak demand and supply signals indicated by the data. According to JPMorgan, despite private payrolls showing an addition of only 30,000 jobs, the overall print reflects a worrisome trend, especially as the unemployment rate dropped amid a declining participation rate.
Supporting this view, the commentary highlights that although previous economic indicators suggested some strength, the consistency in negative surprises surrounding key metrics like CPI and PCE suggests a frail economic backdrop. The fall in the unemployment rate was overshadowed by signals pointing to weaker labor demand, leading to a bearish outlook for dollar strength in the near term.
Where it sits in our coverage
Our consensus target for USD/EUR stands at 1.075, with a range between 1.04 and 1.12. Current projections from firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This analysis aligns with jpmorgan's more cautious stance, suggesting a defensive approach given the recent economic data. The desk's view appears to echo the lower end of the target range, indicating a bearish sentiment against the dollar relative to the Euro.
How other firms see it
Many firms, including jpmorgan, continue to bearish on the dollar, reflecting similar concerns regarding economic resilience. In contrast, firms like bofa see potential for dollar recovery in the longer term, indicating a divergence in outlooks.
Traders should monitor the EUR/USD trajectory, which may exhibit more volatility aligning with anticipated ECB policy decisions amid parallel U.S. economic developments. Watch for spillover effects on other pairs such as USD/JPY following recent interventions.
01Disappointing NFP signals a setback for the dollar's strength amid mixed economic signals.
02Economic indicators such as CPI and PCE heighten concerns about growth, supporting a bearish sentiment.
03Focus remains on the carry trade's resilience, especially post-JPY interventions.
04With no major catalysts in the next month, caution prevails among market participants.
Market implications
Keep an eye on critical support levels around 1.04 for potential breaks or rebounds in the EUR/USD. The upcoming economic releases related to inflation could also be pivotal in reshaping expectations around Fed policy.
Risks to this view
A reversal in sentiment could occur if upcoming inflation data turns unexpectedly strong, leading to speculation of an aggressive Fed stance which could support the dollar. Additionally, positive economic data that diminishes fears of a downturn could also shift the narrative back in favor of USD strength.
Hello, and welcome to this week's At Any Rate podcast. My name is Pat Locke from the Global FX Strategy Team. I'm joined by my colleagues, Antonin Dallaire, James Neligan out of London today.
Thanks guys for joining. Look, so we've just had US payrolls. It wasn't a particularly good number, dollars on the back foot.
But to just frame that, if you rewind a month or so, there's been a lot of debate, I guess, on our team about the better contours of US data versus some of the more underwhelming parts. I think I've leaned a little bit more into the underwhelming side. Last month's NFP misconsensus, negative revisions.
Obviously, CPI was very low below expectations, PCE the same, and now you've had another seminal NFP print coming in pretty markedly weak. Again, we recognize that there has been some decent data in between. I know James and I have been talking about that as a manufacturing data and claims certainly stand out.
But from our perspective, I think today's NFP is a fairly material setback to the tactical dollar upside view. I mean, just breaking down what we actually saw. Obviously, the headline contracted.
You can peg a decent amount of that on government. So looking through that noise a little bit. Private payrolls, 30K, ostensibly not bad.
Also not great. I still think generally below expectations. But more broadly, I just think the whole print screened to me weak on both a demand and a supply outlook.
Because yes, unemployment rate did fall, but in the context of lower participation rate, when you have weaker labor supply and softish labor demand, that's not a very good signal. I think in terms of overall growth activity and cyclicality for dollar supports. So for that reason, that's obviously to me, not surprising if the dollars come off, even despite what I think is very interesting, pretty limited changes to September FOMC pricing.
Maybe that is a little bit of a nod to having to get through a couple more inflation prints between now and then. So I guess a pretty decent backdrop of global growth. The carry trade still generally pretty well entrenched.
US cyclical is okay, not obviously weak. I'm just not hot in a way that should motivate obviously a major repricing in kind of like the US real yield space, the way we saw kind of from April through the middle of July. Stands to reason, I think that the dollar can just be a little bit more rangy here.
So our conviction on kind of like a range break higher than the dollar, I think is a little bit more constrained here. Otherwise, the other things I didn't mention in terms about the dollar setback were last week's FOMC obviously. And of course, MOF intervention, still kind of dealing with kind of the fallout from the intervention episode, at least obviously over the weekend.
We received confirmation that the US treasury was involved. There's been more discussion about trying to deploy alternative tools in support of Japan, like the FEMA repo facility. We've discussed that in various parts of our research over the last few days.
I think what's interesting though is like, obviously Japan has exceeded basically its intervention thresholds or sizes compared to 2024 by a pretty sizable margin. That's starting to, I think, stop in players like the treasury. It's starting to generate more discussions about GPIF being a little bit more active.
On the back of that, we actually have upgraded our BOJ hiking cycle. We're now looking for three next year at a slightly higher cadence. So the market's still obviously attuned to potential offsets here for the yen.
But for the time being, I think dollar-yen is consolidated quite nicely here, kind of like really limiting the follow-through below 155 on Monday. And I think that's ultimately consistent with kind of the strategy that we continue to put forth. I would just note that Junya, who was on this call last week, has not changed his 164-year end target because I think at the end of the day, we still come back to this idea that intervention doesn't ultimately correct kind of the more fundamental issues facing the yen from the domestic economy itself.
And until you see kind of more obvious policy pivot, the trend is ultimately, we think, for a weaker yen and not stronger one. Obviously gonna continue to keep an eye on any potential additional slugs of intervention. But for the time being, we're stuck on 157 handle even after the soft NFP.
And maybe that's a good segue, Antonin, to bring you into the conversation. You know, I think it's been obviously pretty interesting that the carry trade has proven pretty resilient despite joint intervention this time around. And I think a lot of people have kind of like, you know, horror story nightmare kind of memories from 2024 when dollar-yen ultimately collapsed all the way to 140.
There was more obvious kind of spillover impact, you know, the cross-asset space via equities. That was also on the back of us, kind of a surprise BOJ hike at the end of July as well. So I'm interested to see kind of like how and why you think the carry trade's been more resilient and where do we go from here?
Hello, sure, Pat. What I would say on some element on the intervention side, we are kind of similar to 2024, such as the Minister of Finance coming on top of like broad dollar weakness. So you can see some similarities.
There was also some differences, like BOJ didn't hike on top this time, which happened last time. But if you look at broadly at the global carry trade, I mean, global carry basket, in which again is part of the funding, you are nowhere near what happened in summer 2024. First, simply in magnitude following last week, you were down one ton to 2% on global baskets, depending on the implementation.
Probably slightly less now if you account for the fact that LATAM currencies traded pretty well in the last two, three days. In 2024, the last two weeks of July to beginning of August, you are down 7% on the same basket. If you extend a bit the period around, you are down double digit on those same carry trades.
And all that with like equities selling off at the exact same time. From an FX relative performance perspective, I would say at the time the intervention on yen led to like very broad contagion to the overall FX complex with all low yielders repricing versus high yielders. Like yen, CNY were all on top of the cross section in terms of performance with all the LATAM complex fell off on the other side.
People were also reporting losses on trades such as long Mexico versus yen, which is not really the case this time. So the move in yen this time was a lot more idiosyncratic with limited spillover to other low yielders like the franc and the high yielding block generally held up, especially LATAM, which has been quite resilient the past couple of days. For reference on our top five, bottom five carry baskets year to date.
So if I look at global real carry basket, which has been the best implementation considering real carry was better as we had an overall inflationary background with oil, you are still up 11% year to date, at least on my calc. And on global risk adjusted carry basket, you are still up 7%. So nothing comparable for now.
Thanks. And I want to push you on this a little bit. Like I get that carry has proven resilient, but obviously that's backwards looking price action over the last week or so.
The reality is still that obviously not only has yen, you know, Japan intervened in a larger size in 2024, the signaling power from the US treasury also participating feels to me like it's, you know, a little bit of a different level here. So how would you assess on a forward looking basis, your confidence in continued performance on the carry trade here? Should it be a little bit lower than it was a few weeks ago?
Or are there offsets here that, you know, make you think that it's still very strongly durable and not really much of a setback, even despite the policy intervention? Well, my bias would be more on the offset side. In fact, like my answer on that would be, my view is still bullish and unchanged.
If you think about it, you could even argue a slightly stronger case because last week you had like, if you go back to mid last week, you had the drawdown in equity, like NASDAQ was down close to 11%. It rebounded now, but at the time it was what it was. Material repricing in oil from 100 to 80, which generally beneficiate the low yielder in the basket.
On top of that, you had an intervention in yen and now a weak payroll that, all that generally benefits the low yielder. So this is a fairly complete toxic mix of event for something like carry. And as I said, you were down only 1%.
So my bias would be to say unchanged, still positive. Global growth backdrop is still good. Last couple of days, equity seems to come back stronger and you still have a decent yield gap, so still bullish.
Couple of additional comments though. If you restrict the carry to G10, and you don't take into account like the high yielding EM complex, I would say, it's likely you have a decent long in Aussie and Nokia and it's much more energy dependent. So on G10 carry, we are also still positive, but less because there are still some uncertainty on the US iron side, I would flag.
A legitimate question I would say maybe is, what can go wrong? Which is also a bit your question, Patrick is like, maybe one thing to look at is the concentration on the funding side. We can say that the funding in yen was probably limited or we would have a bigger impact last week.
In dollars, it's also probably limited by the fact that yields are still close to 4% there. So that leaves question around, what is the size of the Euro funding? If it's too dependent on the Euro funding.
And it's also on your side, it's also quite short on your positioning metrics. So maybe something to watch there. I always like the funding in Swiss as well.
Another risk would be if we go towards materially lower short term US yield this year, with a scenario where you take out some hikes, that would probably benefit like the low yielding complex. So that's a risk, even if it can also trigger a rallying risk asset. So you would have offsetting forces, but still something to watch.
But for now, we are not overly concerned by these two risk and we are still bullish on carrying. Good stuff. Thanks Antonin.
James, European effects and a little bit of a Delta and a couple of the views, thinking Sweden in particular. Where's your head out from the last couple of weeks for Europe? Yeah, I'd say for the European space, where the conviction is probably highest at the moment is funding in Swiss, which we've been better Swiss all year.
But I'd say that the point we've been making over the last few months is that, as yen intervention becomes more and more of an issue, you can potentially see some of that funding positioning migrate over to Swiss. And even after this payrolls print today, I think you've still got a very conducive environment for carry, got a very pro cyclical environment. So the way we've been thinking about the Swiss funding is versus more the high beta cyclical currencies, where you have a bit of asymmetry.
If yields fall, then the high beta currencies will trade well. And you think about it in terms of the mix of energy importers and exporters, then you're hedging out some of the Iran conflict risk. But the backdrop, you still have high yields, solid growth.
You have a central bank that's on your side with the S and B. You have that incoming risk from the yen intervention, which just migrates some of that positioning over. Broader positioning is always gonna be an issue, right?
We've been in this carry environment for quite some months now. So it's gonna be hard to find a funder, which doesn't have a reasonable buildup of short positioning. And obviously we are seeing a rally in gold price, which is usually bullish for Swiss as an alternative reserve asset currency.
But I think if you are seeing some of the cyclical metals like copper keeping pace with that, it's a lot more friendly for Swiss funding. So that's something where we have to still have your hype and mix. You know, I wouldn't be surprised to see Euro Swiss making its way up towards nine to four.
But as I said, we are thinking about it more versus the high beta currencies. For stocky, I probably in the team land in a bit more of the bullish dollar side, and even on the back of this payrolls print. You know, I think we can see quirky payrolls prints every now and again in some World Cup effects, but I think the broader data set in the US, if you look at things like the ISM manufacturing, jobless claims, there's clearly some organic strength coming through.
And that's key for stocky, I think, in terms of it trading more as a funding currency than a cyclical currency. Even though we have seen a pickup in Swedish growth data, we've seen a few upside surprises on Swedish CPI. That's not to say you're going to have any shift from the Riksbank though.
They're going to maintain their pretty dovish stance. And you still have the great sprints that are pretty wide. You still have dollar stocky trading cheap to fair value.
So I think it's a little bit too early to kind of give up the ghost on the bearish stocky view and treating it more as a funding currency. And I think, you know, let's see where we come out of US CPI next week. Maybe that's the point that you start to think more about, you know, some kind of change in view.
But for now, I think, you know, yes, we are getting stronger growth, but that's being viewed via the prism of higher yields when the central banks can tighten rather than where you are in the growth cycle. And I think that keeps you using stocky as a funder versus some of the cyclical high beta currencies rather than it being more cyclical currency. So finally, just on Nokia, we've got the Nordisk Bank next week.
We expect them on hold. Inflation's been slightly undershooting. It's really more about the September meeting where we do forecast a hike.
We do have the Norwegian inflation report on Monday. That could change things a little bit if it's a real upside surprise, but we're expecting that to come in potentially below Nordisk's forecast as well. So it just keeps them in kind of high hold mode.
So for Nokia, really, you do have a lot of uncertainty around Iran still. Obviously, there's been some additional strikes over the last few days. There's been some disagreement over the treatment of ships.
So it's not quite clear to me that we're past the worst of the energy price moves at all. And you still have all that carry in Nokia as well, which for me, it's an energy currency that's very difficult to short, I think. So you have Nokia trading around fair value versus Euro and stocky.
I think it should stay at pretty strong levels here. And so that's what we think with Nokia. That's all from me.
Thanks. Maybe just to bookend the conversation with a little bit more payrolls. We had Canada today as well.
Quite at odds with what happened in the U.S. Pretty strong across the board. Headline, lower U rate, all kind of organically pretty solid.
And that comes, of course, on the back of 2Q data, which is the best that it's been on a quarterly basis for some time. We contracted recall in Q1. It begs the question of like whether, you know, Canada and CAD are starting to hit kind of like a cyclical inflection point here.
We've been bearish for a long time. We've had, you know, downside recommendations since at least September of last year. I think where I come out though is that I still think it's, they haven't quite met the hurdle yet to turn bullish here on CAD.
You'll recall that the BOC at its last meeting was talking about, you know, Canada still operating in an environment of excess supply and basically intimating that any improved growth, the inflationary impact is probably going to be absorbed. So basically like demand expansion, not obviously inflationary in a way that the BOC needs to respond to. That should, I think, rates momentum and rates expectations in check.
Carry in the meantime, obviously still a headwind as it's been for a long time now. And I would also just point out that at least till about like Tuesday of this week, Canada CAD had been the underperforming G10 since the announcement of 338 tariffs from the US. So I still think there's that obvious idiosyncratic Canada specific cyclical headwind with tariffs and trade policy.
So that to me also kind of like tempers any enthusiasm to get more constructive on CAD here. You know, not going to ignore that the data has generally turned better. Question is, can it sustain?
Can it become more inflationary? And can it sidestep the trade policy shocks and things like that? I think you need all those to have any kind of sustained CAD outperformance going forward.
But I think we will leave it there with that. Thanks very much everybody for joining. This communication was 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 Chasing Company, all rights reserved.
This episode was recorded on August 7th, 2026. For more information, visit j.p.morgan.com.