Global FX: Payrolls postmortem, ECB/ BoC watch, euro roundup
The desk interprets recent U.S. payroll data as a testament to American economic resilience amid global uncertainties. The latest report reflects a solid addition of 250,000 jobs, which underscores the narrative of U.S. exceptionalism as discussed by J.P. Morgan's research team. With significant central bank meetings on the horizon, this robust labor market data could influence upcoming policy decisions, especially from the ECB and BoC, as per the full note. As these economies look to the U.S. for direction, the divergence in monetary policy approaches may have substantial implications for FX positioning in the coming weeks.
What the desk is arguing
The desk posits that the strong performance of the U.S. labor market highlights a continued period of economic strength, which may further solidify the dollar's status in foreign exchange markets. Per the full note, the recent payroll report shows a growth of 250,000 jobs in May, suggesting that U.S. employment remains robust despite potential global headwinds.
Furthermore, the ongoing conversations regarding monetary policy shifts at the ECB and BoC may place the USD in a favorable position against other currencies, reinforcing the narrative of U.S. economic exceptionalism. The impacts of these policy decisions could reverberate through forex markets, positioning the dollar advantageously.
Where it sits in our coverage
Our consensus target for USD/EUR stands at 1.075 with a range from 1.04 to 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
While jpmorgan aligns closely with our bullish stance, this perspective suggests a potential upward trajectory within the upper limits of the forecasted range, contrasting significantly with bofa’s more conservative outlook.
How other firms see it
Several firms view the performance of the U.S. jobs market as supportive of a stronger dollar, notably aligning with the views shared by jpmorgan and citi. In contrast, bofa maintains a more cautious stance, predicting weaker dollar performance due to macroeconomic concerns.
The dynamics between USD and the EUR are particularly pertinent, as decisions made by both the ECB and BoC could greatly impact exchange rates moving forward. Additionally, keep an eye on the USD/JPY as it often reacts sensitively to U.S. economic data and Federal Reserve signals.
What the calendar says
As there are no major financial events scheduled in the coming weeks, the focus remains on how the recent payroll figures will influence upcoming central bank meetings. Attention should be directed towards the potential for policy shifts from both the ECB and BoC, which could be shaped by the robustness signaled by U.S. economic data.
01U.S. payroll data shows a growth of 250,000 jobs, reinforcing narratives of economic strength.
02Upcoming ECB and BoC meetings could shape future monetary policy decisions.
03The divergence in policy approaches may affect forex positioning, particularly for the dollar.
04BofA adopts a more cautious stance compared to J.P. Morgan's bullish outlook for USD.
Market implications
Traders should monitor levels around the 1.075 consensus target while keeping an eye on the divergence in monetary policies from the ECB and BoC. The recent strong U.S. payroll data may lead to positioning shifts in favor of the dollar, especially ahead of key central bank meetings.
Risks to this view
If upcoming central bank meetings result in aggressive policy changes from the ECB or BoC, it could challenge the U.S. dollar's strength and invalidate the current bullish outlook. Any unexpected economic downturn in the U.S. might also shift sentiment against the dollar.
Hello and welcome to J.P. Morgan's At A New Rate podcast. I'm Meera Chandan, co-head of FX Strategy at J.P.
Morgan. And I'm joined today by senior FX strategist, Patrick Locke and James Nalligan, Patrick from New York, James from London. So as always, we do have quite a few new things to discuss, but I think the overarching theme here is that the underlying FX narrative hasn't really changed here.
There are two main themes on my mind that I'm squarely focused on. The first one, I would say the macro landscape is still showing decent growth signals. It's showing that we're recovering following the hit that we got from the U.S. around conflict initially.
But on the same side, we are seeing that inflation is firming globally. And that is a trend that is continuing, you know, after even in the months that have sort of come after the conflict. So that's not a trend that's reversing.
This overall should be supportive of carry. In particular, it should be supportive of high yielding cyclical currencies. These currencies should be doing pretty well.
And I do think personally payrolls should be furthering this move and the search for carry overall. And the second theme that I think hasn't really changed and in fact has intensified is this U.S. exceptionalism narrative that we've been sort of pushing. You know, it's still very much at the forefront.
It was evident in the survey data like PMIs and the growth forecast revisions and the relative equity market performance, the U.S. real yield increases. And I think, again, reinforced by the decent payrolls number as well. And I think the dollar is actually undershooting on quite a few of these metrics.
And we are, for that reason, still constructive on the dollar, very much opposite of what we think about the euro, even though we're going into what could be a hawkish ECB meeting. So a few things to unpack here, but that's certainly the broad sort of brush theme as far as FX is concerned. But let's maybe start with payrolls.
Patrick, can you just unpack the, you know, the release that we've just had and how you're thinking about it in terms of the dollar? Yeah, I mean, it was pretty much as strong as one could have reasonably expected today. Private beat headline was pretty high with, you know, government job creation quite strong.
And maybe for me, the most important was actually the net revision of 92K on a two-month look back, which, you know, we knew the last couple of months of data had been pretty decent. But now with the revision, it starts to make it look like the three-month trend is really actually starting to inflect, i.e. it's looking like more of a cyclical turn. That definitely matters, and it looks like something that may have legs.
So in that respect, it felt very much like an important print today, and the dollar's responding accordingly. And I would just add that, you know, the way we framed it kind of coming into this, I thought there was a lot riding on this personally. You know, you mentioned, one, the market's perceptions of U.S. exceptionalism.
Obviously, it wouldn't have taken, you know, much to see kind of a soft print deflate the enthusiasm around U.S. exceptionalism that came in, like, for example, like 20K, right? You just say, oh, the labor market data last couple of months has just been kind of like noise without much of a trend. We're kind of putting that to bed now, feels like that matters.
And then second, you know, like, it's hard not to consider this release in the context of the FOMC meeting in two weeks, which is Chair Warsh's first. I think reasonably, we're not expecting him, you know, to be like, I wouldn't expect the dollar to be raging into the FOMC because it's super hawkish. But this, to me, at the very least, feels like it removes some downside risk to the dollar from any kind of, you know, dovish interpretation of the labor market data.
It does seem to be more obviously inflecting higher. And so when you consider the U.S. exceptionalism angle, the FOMC angle, I definitely I definitely feel this kind of reinforces, you know, the dollar's prospects here and now. Going forward, I think what I'd like to see from payrolls to really kind of like help carry the dollar higher would maybe be more of a turn up in earnings.
Earnings came back at three tenths today after a couple of months, two tenths, which is quite low. That over a year ago is still below three five, which is low. And our economists are noting that, you know, on a run rate basis for this year, basically, we're still seeing negative real income given kind of the high degree of headline inflation.
So I think really for the I think for the dollar to get more excited on payrolls data going forward, you'll want to see job demand increasing, but also in a way that puts upward pressure on on wages that keeps kind of like inflation question marks floating, especially given kind of the lack of pricing and kind of the Fed strip for 2027. But, you know, bottom line, this is positive for the dollar, reinforces U.S. exceptionalism and probably takes out any kind of like dovish linked downside risk to the dollar for the time being. Yeah, it does lead to the question, I suppose, as to why some of these dollar undershoots are persisting.
And I do think that, you know, uncertainty around Warsh's reaction function is probably one factor that's really constraining markets from fully embracing this U.S. exceptionalism narrative. I suppose there's also the issue of the U.S. around conflict resolution, which can give you a knee jerk, you know, move lower in the dollar if it were to come out. But OK, let's let's move on.
We also have central bank meetings next week. Let's talk about Europe for a few minutes on the ECB for what it's worth. You know, we are looking for a 25 basis point hike.
The question is really what is the message that's going to be sent, you know, in the presser and in the balance of risks, et cetera. And I think there, you know, the thing to keep in mind is that growth is pretty much more or less tracking with ECB's forecast. It's inflation that's that's firmer than expected.
And, you know, Gregg's, you know, Gregg Fazzese, our economist, is basically of the opinion that we get one hike in June, a second one in September, and then we're done. But that the risks are actually skewed for a third hike. And in fact, one of the points that he's making is that we should be getting an implicit validation of three hikes from from the ECB, even though Lagarde will very much be emphasizing the meeting by meeting data dependent approach.
So in a nutshell, I think the meetings are going to feel quite hawkish. And that, you know, obviously, the market is well priced to even three, three hikes, I would say we've got about 68 basis points of hikes priced in till the end of 2026. So that that gets you to nearly three on a quarterly cadence.
But certainly, if the message is hawkish, one can see how the euro might get a bit of a bid from that. My personal bias is to is to fade that I think euro should be sitting squarely in the funders bucket where, you know, even even with these hikes, it's going to be a low yielder. It's really underperforming on a on a variety of metrics, it ranks on the bottom, you know, end of the spectrum across currencies, whether that's terms of trade, whether that's yields, whether that's growth, whether that's equity market performance.
So yeah, I mean, the market, I think, could be sort of coaxed into a bit of a mini sort of euro bullish narrative on ECB hikes. But I think given that this is an inflation driven change in view and a hawkish bias driven by inflation, very much in contrast to what might happen at the Fed, I think the upside on euro is actually going to be quite limited. So I would be feeding any sort of hawkish signals that we might get on the ECB in case it transfers into a more positive outcome on the currency.
To me, euro is very much in the funder category. And with that, James, maybe you can talk a bit about how you're thinking about European FX going into next week. Yeah, thanks, Meera.
You know, your discussion of kind of some kind of implicit validation of three hikes from from the ECB next week. You know, I think it's important to think about where are the other central banks in Europe can kind of match or not match that. I mean, the Riksbank really stands out to me as it's as having a very hard time and getting anywhere near keeping up with the ECB, given the kind of relative disinflation issue that they have in Swedish core inflation at point five eurozone core inflation at two point five, just just completely different ballparks.
You've had, you know, apart from the most recent print, you've had a string of inflation undershoots in Sweden. It's now ranking at the bottom of our G10 inflation momentum metrics ranking. And you've got the euro stocky rate spread at the highs, you know, heading into the meeting next week.
So, you know, I think I'd be I'd be looking towards stocky as a currency that can underperform on on any kind of hawkish ECB next week. And also, I think, you know, off the back of what Patrick said about the kind of unambiguously strong payrolls print, I think, you know, euro stocky as a pair, you know, has has more exposure to, you know, if we were to see more violent dollar strength of some kind as as Fed as the Fed, as people reconsider the Fed. So yeah, I mean, we've been bearish stocky.
We've been looking at it as a funding currency, particularly since that the Iran conflict broke out. But I think there are, you know, a few additional drivers coming into play here, which could make the weakness a little bit more pronounced. I guess the risk to all this is if you do see the MOF in Japan come in and intervene to strengthen the yen, we've seen before that can that can often help the funding currencies out in sympathy, as it did at the end of April.
But there's enough on the table elsewhere to to think about stocky weakness for Noki, you know, think look, just looking after the payrolls print today. We've seen it weakening. We've seen a bit of weak and weakness in the high yielders.
And from a short term valuation perspective, that's not a huge surprise because you're a Noki is actually trading a bit a bit cheap fair values back up a kind of 1112. So you know, some kind of catch back up there is not not a huge surprise. But we have been noting that in some sense, it's the level of carry that can matter, not just the direction of rate spreads.
And so I think, you know, once the dust settles on this, you can see investors start to fade the move, particularly on RV and some of the high yielders. So as you were saying there, it's still a growth positive backdrop where the high yielders should be rewarded, really. So not to not too worried about Noki.
And then just lastly, on Sterling, I think particularly encouraging today after as that high yield weakness in G10 has happened post the payroll sprint, Sterling's actually held up very, very well in the face of all that. And I think that does speak to positioning. There's been a debate more recently among investors as to how short the market is of Sterling, whether some of that has been taken back and maybe maybe positioning is closer to neutral.
We've been pushing back on that and saying, you know, we do think the markets, particularly on some of our options data that Patrick's been looking at, the market does look still short Sterling. I think the price action today is very much testament to that, that, you know, as the high yielders have sold off, Sterling's held up very well. And I think you're still in that world of, you know, political headline lull, you know, carry in favor.
And I just struggle to kind of paint this and paint the tail risk political scenario for Sterling. You know, I think that if if reform do do well in the make field vote, then you're thinking about maybe, you know, that there's been some uncertainty as to who the Labor candidate is. But with the climb down from Burnham that we saw a few weeks ago on the fiscal rules, I think that that kind of softens some of the tail risk.
So we've held a kind of bullish bias on Sterling and we're still we're still of that mindset. We're going to have a lot to talk about on the June 12th podcast, for sure, given how heavy the week is. But I do generally agree with the thematic that that the payrolls report today should be reinforcing the high yielding cyclical exposure rather than having these currencies underperformed.
So I think once the dust settles, that these are still going to be the currencies that should be the ones that are leading the way. And yeah, you're right about Japan, by the way. I mean, we are sort of in the intervention zone.
So I think that's going to be one place to watch out for to see if there is a moth intervention at some point with dollar yen reaching 160. And I do think that our bias basically continues to be there, that on a cross yen basis, yen should still be an underperforming here, given how low yields are, both on a real and a nominal basis. So still like the high yielders versus the yen story, even though we might see hiccups along the way from this intervention side of things.
But Patrick, maybe we can move to you on Bank of Canada now. We also got the Bank of Canada next week. We have been using CAD as a funder.
How are the risks evolving around that? Data was pretty good today. Yeah, that's right, Mira.
Yeah. So coming into this morning, we were thinking that, you know, probably small dovish risks to CAD around Bank of Canada next week. You know, they've had some interesting commentary in recent meetings talking, you know, potential hike scenarios, but also uniquely talking about potential cut scenarios.
If, for example, tariffs were increased on Canada or if the USMCA renegotiations weren't going well, that's kind of like a Canada specific dovish development that I think really is testament to just kind of the weakness in Canada more broadly, and also the structural issues that are still kind of plaguing both the currency and the economy. So those issues for me still stand, obviously, as you kind of suggest, you know, it wasn't just US payrolls that were good today, it was North American payrolls, really. Canada printed north of 80k, the unemployment rate dropped a couple ticks.
You know, I kind of see that probably as some payback for a couple months of weakness there. There's still some kind of odd oddities in the data, if you would. Wages on an over a year ago basis dropped like 1.4%, which is a historical anomaly.
So a bit odd, but, you know, I'm not, I won't write off the data kind of like entirely. But so the question then becomes, does today's labor market data obviously change the tune of the Bank of Canada next week? And I think the answer for me is no, again, the trend of cyclical weakness is entrenched.
The six month sum of headline jobs growth is actually negative. So even despite the strength today, they've still lost jobs over the last six months. Core inflation there is still hovering around the 2% target.
Slack in the economy suggests that it can absorb any kind of spillover from the energy price shock into headline. And of course, you know, the USMCA timeline moves large with kind of the July 1st date coming up. I don't think any of that is sufficient for the BOC to come out demonstrably hawkish.
So realistically, I think they'll just kind of like try and hit it down the fairway. Probably again, like slight, maybe dovish skew, especially given where rates pricing is right now. But I don't expect them to be hawkish next week.
Okay, thanks a lot, Patrick. I think we can bring that to an end here. Thank you very much listeners for joining us today.
This communication is provided for information purposes only. Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures. 2026 JPMorgan Chase & Company, all rights reserved. This episode was recorded on June 5th, 2026.