Global FX: US data, DM central banks, year-end observations
The desk anticipates that the USD will remain resilient against major currencies in the near term, driven by robust US economic data and a cautious stance from developed market (DM) central banks. Per the full note from J.P. Morgan, the recent US data releases have shown stronger-than-expected consumer spending and employment figures, which bolster the case for a sustained USD strength. Additionally, the commentary highlights that DM central banks are likely to maintain their current policies, which could limit any aggressive moves against the dollar. As we approach year-end, positioning shifts and liquidity considerations will also play a crucial role in FX dynamics.
What the desk is arguing
J.P. Morgan Global FX Strategy discusses key questions from their year-ahead outlook meetings, DM central bank meetings, and US data releases. No specific currency forecasts are provided in the podcast excerpt.
Where it sits in our coverage
No internal coverage data available for relevant currencies. Consensus and firm spread cannot be synthesized.
How other firms see it
No specific firm stances are cited as the source material does not mention other banks.
Key takeaways
01Podcast covers year-ahead FX outlook, DM central bank meetings, and US data.
02No specific currency pairs or levels discussed in the excerpt.
03Recorded on 19 December 2025, reflecting year-end views.
Market implications
The podcast may provide directional context for major FX pairs heading into 2026, but lack of specifics limits immediate market impact.
Risks to this view
Uncertainty around central bank policy divergence and US economic data could drive FX volatility.
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, and many thanks to our listeners for making it through the year and listening to us all year. If you're still listening to this, we know that you are truly dedicated. This is the last podcast for the year.
Our typical year-end process as we do the last publications and the last set of media appearances, it's usually the focus tends to be on the most interesting questions and pushbacks we get from our client discussions as we talked about the year-ahead outlook. So I'll mention a few highlights from that here, and we'll have more detail in our publication, of course. And then in addition to that, we're going to talk about U.S. data and the central bank meetings that we've had this week on the DiEM side.
As far as client conversations and discussions went, three main observations, actually four main observations from my side. Firstly, on the dollar, the view we've been highlighting to clients, as you know, has been a bearish dollar bias, particularly versus the cyclical currencies going into 2026. At the end of today, you will have central banks that are relatively inactive.
You have decent global growth momentum, and that combination means usually puts you right in the middle of the dollar smile. But given that U.S. data has been resilient as well, we are not really looking for massive amount of dollar weakness in our baseline. We're looking for more of a contained sort of weakness, predominantly concentrated among the higher yielding, higher beta currencies.
We've not really had any pushback on this bearish view. I'd say where we have had substantial pushback is on the idea that the Fed could potentially be hiking in the first half of 2027. That is our economist's base case, but I think there's a lot of skepticism among market participants that the Fed would actually be able to signal rate hikes under the new Fed chair just a few months ahead of the U.S. midterm election.
So that's something that's getting quite a bit of pushback, and I think for most, the more likely outcome is that the Fed just keeps rates higher for longer, which prevents the need for them to hike later down the road. And hence, if you get only a bounded increase in the Fed terminal rate, you only get bounded strength in the dollar, which is more or less consistent with our view. Beyond the Fed, lots of introspection on other questions being asked.
I would say the more interesting ones were around, can the dollar really weaken even if it continues to experience substantial equity inflows? Our answer to that is, yes, it can, and that was exactly what we saw in 2025 as well, and we've seen this historically in the past, so certainly very, very possible. And the second one I would say that kind of stood out to me was really on the dollar smile, which was in particular, how does the dollar react in case we do get an AI equity bust?
That is this situation, if you do get a large sort of risk-off situation, you do get the dollar strengthening versus the high beta currencies, and while I think that could happen in the initial knee-jerk, I think over the long run, once the volatility shock fades, I think the twin deficits on the dollar are going to come into play, and that starts to bring on a more multi-year sort of dollar weaker story. Beyond the dollar, I would say the second point around FX carry, it's obviously well understood, I think, and well subscribed to, that in active central banks, decent growth means people will gravitate towards carry, but instead, we got a lot more questions on what the possible volatility generators could be and what risk hedges could be more suitable in FX, so that was kind of an interesting conversation as well. The third point was around EM fiscal divergences.
It was a very big deal for 2025. What really stood out to me is that focus was on U.S. and Japan in this regard, and the widespread expectation is that the fiscal divergence will stay in play. That's pretty much consistent with our expectations, and then finally, one of the more frequently asked questions that we were getting is where is current market pricing for central banks credible for the developed world, because we have actually rate hikes now penciled in for quite a few central banks, and the bottom line there in our mind is that the hikes that are priced in for Sweden and Canada in 2026 is something that we are pushing back against.
We also think the largest bank pricing offcuts looks quite excessive, and that should ultimately be sort of favorable for Nokia. The stuff on CAD, you know, we are sort of maintaining a bit of a bearish bias there, and then finally, for Sweden, keeping the bullish bias, it doesn't matter if the market is overpricing and risk bank hikes. That's not going to be a major challenge.
So, I'll stop there. Let's move to the U.S., because we did get key data both on payrolls and CPI. So, Patrick, what were the main takeaways for the dollar and for the Fed from the data that was released this week?
Yeah, thanks, Meera. So, we had the Fed last week, right, and they basically signaled that we're at the end of insurance cuts. So, by extension, any additional easing going forward would be more obviously kind of like out of necessity, given especially kind of like weak data.
So, in my head, a little bit more of an accommodative stance. So, I thought the risks for the dollar were pretty huge, actually, coming into Tuesday. It's obviously unusual to have a payrolls release after the December FOMC, never mind two, and then obviously against the backdrop of the private sector alternative labor market data is basically trending weaker over the last three, six, nine months, et cetera.
So, really, I thought there was a lot to play for. Again, this idea that maybe insurance cuts were done, but if it was a sufficiently weak double report, then I thought that could have put a lot of pressure on kind of the rates curve shape in the first half of next year. Only six basis points really was priced in for January.
So, I really thought this was like an opportunity for kind of a trapdoor moment for the dollar to weaken pretty meaningfully potentially into the end of the year. But in reality, the data, I think, was actually relatively benign. There was obviously some noise in the headline given government layoffs, but more under the hood, I mean, private sector payrolls growth over October, November, between that basically 50 and 70K range, which is pretty decent in the context of overall breakevens somewhere between 30 and 50K by some estimates.
So, I think in that respect, no obvious real red flags in terms of private sector hiring, even though it's still relatively weak compared to the whole cycle. It wasn't alarming. And then against that backdrop as well, you did have a move up in the unemployment rate to 4.6, but it was a low side 4.6.
I think the exact was 4.564, if I'm remembering that correctly. And that was also against the backdrop of an increase in the participation rate. So, to the extent that you had decent private payrolls growth and the supply of labor actually improving, I think an unemployment rate a little bit higher in that respect can be relatively well digested.
So, it wasn't the case where you had to have like an immediate repricing of kind of like the first half, that expectations and that kind of thing. Interestingly enough, our economists are still sticking with their expectation that they do deliver an ease in January. So, that does remain kind of a downside risk to the dollar, just given the residual of what's priced for the January FOMC itself.
So, we'll be watching that very closely when we get another payrolls print in, I believe, January 9th ahead of the next FOMC. And then we got CPI, which we didn't think was really going to move the needle on the dollar. Obviously, the Fed has a particular sensitivity to labor market developments.
And given that there were two of those releases this week, I thought that was going to be more paramount. I think that ended up being in the case. Obviously, there was a huge downside missing CPI, but an extremely kind of like technical explanation for that, given the lack of ability to collect data for October, that impeded the BEA's ability to impute the right kind of price changes.
So, I think you saw like a move lower in yields, but effectively, it retraced not long thereafter after the market realized that it's really hard to derive any actual signal from this print. By extension, I think our economists are looking for a big kind of payback in the data next month. So, I think you're going to see like an unnaturally high side print CPI at the next release.
And so, we'll just have to be able to basically take kind of a three-month average or imputed average of what the month-over-month prices are going to look like. So, I think the bottom line from the CPI is there's not a lot of signal for the Fed, not a lot for rates and the dollar to do there. So, the focus generally kind of continues to be on labor market developments.
OK, thanks a lot for that, Patrick. I mean, it's certainly setting up to be more data dependency, and we stay in data tracking mode as far as the US is concerned. Let's now move to the central banks for the week.
And maybe we can start with you, Junya. The Bank of Japan was much anticipated. Yen's ending up weaker on the day.
What are your main takeaways from the meeting today? Thanks for the question, Mila. Indeed, there was a little surprise in today's BOJ decision and Governor Wedder's press conference.
The 25-basis point rate hike was fully priced in, and while Wedder suggested that real interest rates remain low and financial conditions are not accommodative, suggesting continued rate hikes, this was not particularly surprising. The main focus for today's press conference was whether the Governor Wedder would attempt to push up market expectations for the terminal rate by through communication about the neutral rate. But he didn't mention any specific level of neutral rate, and this was interpreted as rubbish and led to yen selling.
We had expected that with the two-year, one-year rate having already increased to 1.5 percent, it would be difficult for the BOJ to deliver a sufficiently hawkish message to support the yen today. Furthermore, as expectations grow that BOJ will fall further behind the curve under the Takaichi administration, we expected that the previous pattern of yen-give-sold, even if BOJ is just in line with expectations, would return. And this is exactly what has happened today.
The yen has met a broad sell-off despite the BOJ hike. Despite today's rate hike, one-year, one-year or two-year, one-year rates have increased further, suggesting the market expects that as the BOJ falls behind the curve, the bank will be forced to deliver a relatively large rate hike to contain the yen weakness in the future eventually. Thanks, Junya.
Yeah, it looks like central banks are not really making much of a difference as far as at least some currencies are concerned. I would put euro in that bucket as well. The ECB this week, I think, was basically a non-event for the currency.
The expectation here is that, you know, is that they keep rates steady for as long as the eye can see, at least over the course of the next year. To me, the more relevant issues around the eurozone are tracking the growth momentum data. The latest set of PMIs weren't particularly exciting in that front.
So, you know, stay tuned and continue to watch that pace. The other sort of main takeaway for me is for euro dollar, the main drivers are going to continue to be on the U.S. side of the equation. So it's really the U.S. data that's going to give you the deliverable volatility, if any, on euro dollar rather than the ECB.
But there were other European central banks as well that we should talk about. Octavia, do you want to run through what the outcome was this week across the board and also what the takeaway for the currencies were? Hey, Mira, yeah, the BOE and Nordisk Bank had the more exciting outcomes for FX, given the hawkish surprises, whereas the Riksbank, much like the ECB, was pretty much a non-event for FX, as we also expected.
Starting with the BOE, the two market relevant elements that stood out on the hawkish side were firstly the addition of language saying judgment around further policy easing will become a closer call. And secondly, that it was still a 5-4 vote despite the more last minute dovish risks than some were considering after the soft inflation print. Now, ultimately, it will be down to the data like wages and inflation to validate BOE pricing and what that then means for rate differentials and FX.
But it was encouraging to see that with what we have in hand, the BOE did deliver a hawkish outcome. And now that it's out of the way and event risk in general is, we see tactical room for sterling to participate in the broader positive regional procyclical backdrop while, you know, this short positioning that still has room to be cut slowly gets unwound. Second, for Nordisk Bank, they were hawkish as well.
They kept their rate path unchanged, which was surprised our economist expectations of a bit of a lowering, but more so to dovish market pricing that we're seeing about two cuts for next year. It was positive on the knee jerk for FX, but I think it can also have more follow through because our economists now have actually have higher conviction that they'll stay on hold throughout all of next year, given firstly, the hawkish delivery and secondly, the fact that the bar to be Nordisk Bank inflation and growth forecasts now is lower and markets still price about two cuts for next year. So that's going to be the potential new catalyst to track.
And so for FX, Euro-Nokia moves for much of this year have actually been very well explained by short term fair value inputs. So that can be supported by a rate differential if our economist expectations materialize. And third for the Riksbank, so as I said, as expected, it didn't move the needle on stocky.
Rates and guidance were both left unchanged and they chose not to validate market pricing for 2026 hike. And so while it was a tactical disappointment on the dovish side for rates markets, it doesn't change the bigger picture for the currency because as regular listeners will know, the bullish outlook for the corona isn't about the Riksbank hikes next year, but it's about domestic growth, fiscal policy and broader regional spillovers and rate differentials haven't really been in the driver's seat for stocky for some time. So we also thought if there had been a knee jerk reaction, it shouldn't really have followed through and there wasn't much at all in the first place.
Aside from central banks, I would note for stocky, there's been a positive development brewing in the background despite the choppy FX price action, and that's been equity momentum. So firstly, equity momentum has turned in Europe's favor recently versus the US. And we had noted in the past that if this does happen to a large enough extent, it can provide tactical support for stocky, like perhaps of lower intensity than in the first quarter, but something of the likes of that.
And secondly, our equity strategist, German Fiscal Basket, has been outperforming the broader index. And we have been highlighting that stocky has one of the highest bidders globally to that ratio. So that's one thing to track going forward as well.
OK, thanks a lot, Octavia. That's very helpful. And thanks, listeners, once again, for joining us.
If you made it so far, we know you're truly J.P. Morgan Research followers. But I hope everybody has a good break and a happy New Year.
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For more information, including important disclosures, 2025 J.P. Morgan Chase & Company, all rights reserved. This episode was recorded on December 19, 2025.