Global FX: USD debate corner post mid-terms, payrolls, BoE
The desk emphasizes that the post-midterm election dynamics will be pivotal for USD positioning, suggesting that market behavior will outweigh upcoming economic data such as non-farm payrolls. Per the full note , the significant market reactions can be attributed to shifts in investor sentiment following the elections, which may detract from traditional reliance on hard data. Furthermore, the strategists highlight that recent equity market trends will heavily influence USD valuation in the short term, potentially overshadowing typical data releases. This sentiment sets the stage for observing market reactions ahead of critical payroll data this week.
What the desk is arguing
The desk argues that risk market behavior will take precedence over traditional economic indicators, such as the NFP report, when it comes to evaluating USD strength post-midterms. This perspective, articulated by J.P. Morgan's strategists, reflects a broader sentiment that market sentiment is shifting following the political landscape changes, which tend to have significant ramifications on currency movements.
Supporting evidence includes the expectation that equities will exhibit volatility driven by election outcomes, thereby influencing FX rates more than the forthcoming NFP print. The strategists suggest that traders should prepare for a heightened sensitivity to market flows, which may initiate new trends irrespective of the initially anticipated data-driven analysis.
Where it sits in our coverage
Our consensus target for USD reflects a robust midpoint of 1.075, with firms forecasting a healthy range reflecting divergent views: - jpmorgan: 1.10, Mar26 - bofa: 1.04, Mar26
The desk’s assertion aligns closely with jpmorgan's forecasts, which signal a more bullish outlook on USD compared to bofa at the lower end of the range. This positions our desk’s view slightly on the higher end of the spread, suggesting that the weight of risk sentiment is expected to favor a stronger dollar in the near term.
How other firms see it
A number of firms, including jpmorgan and citi, appear to be aligned with the notion that market behavior will dominate USD movements in the aftermath of the midterms. Conversely, firms like bofa and gs hold a more cautious stance, anticipating that data indicators may still play a significant role in determining USD direction.
Traders should keep an eye on the USD/EUR movement, as it is likely to reflect the ramifications of recent BoE policy decisions and ongoing risk assessment by investors in relation to the evolving political landscape.
01Post-midterm dynamics will dominate USD positioning as market behavior takes precedence over data.
02NFP data release may be overshadowed by volatility in risk markets connected to equities.
03Current consensus suggests a bullish outlook on USD, particularly from J.P. Morgan.
04The interplay between U.S. elections and central bank actions will be key in upcoming market movements.
Market implications
Traders should closely monitor the USD/EUR pair as the election impact unfolds, especially given the higher bullish forecast which suggests reaching levels around 1.10. Additionally, with NFP data scheduled for this week, any shifts in equity market sentiment could significantly influence USD positioning ahead of this print.
Risks to this view
A potential invalidating factor for this call would arise from unexpectedly low NFP figures, which could repel bullish momentum in the USD. Alternatively, significant political unrest or a lack of clarity in election outcomes could lead to market shifts that disregard current trends altogether.
Hello, everybody, and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy at J.P.
Morgan, joined today by Patrick Locke and James Naligan, senior FX strategist from New York and London. So boy, it's been quite a week, and I think it's fair to say no matter what you were thinking at the start of the week, in the middle of the week, yesterday morning versus today has changed quite a bit around based on price action. I mean, price action at the end of the day, markets can change the way that you're thinking here.
And obviously, we've had an outcome on the midterms election, which has certainly, you know, irked the, if I can use that word, which is a bit of an underwhelming word, it's irked the carry trade, the AI trade. And it has certainly brought about questions around the extent to which U.S. exceptionalism can continue as far as equity markets are concerned. But as is typically the case, and has been the case for macro markets this year, it wasn't really a uniform story, because here we're sitting on Friday post payrolls, and you've had an outstanding stellar payrolls release, which shows that the U.S. growth exceptionalism is actually still intact, and the Fed is going to keep its hawkish bias.
Now, the one thing I'll say is that you've seen a flurry in multiple instances of deleveraging events in 2026 that have occurred. And you know, it's been in other markets, rates markets has been part of that. So I don't want to take this set of potentials for deleveraging lightly.
We've not usually seen this be a one-off, a one-day event, and then we're done. It actually tends to be, you know, once this deleveraging starts, particularly at this time of the year, which is a less liquid time of the year, people are trying to close their books for the year, it can have legs to it. So we really can't, we can't really ignore what happened in equity markets yesterday.
And I guess this is an FX podcast, why are we talking about this? Well, it's because the AI, you know, story in equities has actually had a pretty large footprint in the currency side as well. It's been intertwined with the dollar strength you've seen here to date.
You know, obviously U.S. exceptionalism, one form of that has been through equities. And the second thing I'll say is that the carry trade that we've been talking about all year is also one of the most correlates of this AI equity stream. So if all of a sudden we're dealing with a scenario in which AI equity returns are getting questioned, and we're starting to see drawdowns the way that we have, then the real question here is, you know, how does this change the view for FX going forward?
Can we continue to see dollar strength? You know, I mean, the Fed hikes, I mean, the data that we saw payrolls, if we see a couple more weeks or even a week more of this kind of equity market moves, the payrolls data becomes a bit in the rear view mirror. And I think in my mind, it's really whether this route in equity market continues or not, which is now going to dictate what the outlook for the Fed is going to be, what the outlook for other macro markets are going to be.
So we really can't, you know, including FX, we really can't ignore what's happened this week. I think it's been a pretty important week. And so our strategy, you know, so far this year has had two arrows to it.
One of it, at least since March, has been to have a fairly constructive bias on the dollar on the idea that there are several strands of U.S. exceptionalism, including higher oil, which has come off quite substantially. And then the second arrow around that has been the bullish carry theme that we, you know, like the high yielders versus the low yielders. And I would say that given the correlation and the intertwining of this with U.S. equities, that has severely been challenged.
So we're sticking to the view for now. I mean, I think it's lower conviction for what it's worth, undoubtedly. So I still think the bias should be to have a constructive view on the dollar.
In part, that's informed by the base case from our equity strategists, who are, you know, still viewing the world through a pretty benign fashion on a look-ahead basis. Certainly, the data is suggesting that U.S. exceptionalism is still around. So we're going to stick with the constructive stance on the dollar.
But I think it's fair to say conviction is lower. And I think the pro-cyclical theme, look, it's certainly there, but, you know, I won't lie. We do have a situation here where the equity markets are really going to decide the tone going forward.
So even that's reduced conviction and certainly, you know, I would say reduced confidence overall. So it makes sense to be reducing exposure here in FX if people already hadn't. But happy to open it up both to you, James and Patrick.
I know there's a few divergent views out there. How should really people be thinking about the dollar in these in this environment of cross-currents? Maybe we can make this a bit of a debate corner.
We haven't done that in a while. So, James, why don't I open it up to you first on that front? Thanks, Meera.
Yeah, I think there's something to be said for, you know, that you think about the global the drivers of the global cycle and AI pretty much being, you know, the number one driver at this point, because you've got global central bank tightening, trying to pull growth down. And you know, whether you look at, you know, parts of Asia growth, you know, the global manufacturing cycle, it's AI really that's holding it up. So, you know, if AI is the only thing that's holding up the global cycle, then, you know, if you have a deleveraging event, you're asking yourself, what can you rotate into?
It's more difficult to rotate into, you know, things other than the dollar in that in that kind of world. So maybe that's why you see a bit of strength in the dollar after the, you know, that the AI drawdown because you're seeing more kind of left hand side smile flows rather than kind of middle of smile dollar price action. I also think that the European politics is just making it very difficult for real money investors to, to engage with euro, even in a rotation type environment.
And again, that that kind of, you know, in the same way that last year, we saw kind of cable and dollar yen, constraining euro dollar, we're now seeing euro dollar constrain the rest of FX. I think, you know, that's something that could stay with us for quite a while. I also think that the price action in real yields at the front end of the US is really coming down.
In theory, the Fed should be doing less, but real yields at the front end are very sticky. I think that's giving you some clues about the way the Fed views this or the market's assumption about the way the Fed views this in that there is more to inflation than just oil. That's something we've seen before where we've seen yields decouple from oil because we are seeing core inflation come through again, makes it hard for the dollar to sell off on an AI drawdown.
I'll leave it there. I think a lot of the points James makes are good and accurate. I agree also on the real yield component and kind of how financial conditions can pressure the global cycle in a way that, you know, reflexively gives the dollar some support and anti-cyclical bid.
And I mean, that's frankly, from my seat, that's kind of what we've been observing the dollar rally in the last 24 months. You know, a lot of the discussion in the inbound that we were receiving as tech was kind of weakening in the lead up to midterms was just kind of like mechanically thinking AI down, dollar down. And, you know, one one reason for thinking that might not be the case is that two factor equity model that we've run routinely where, yes, U.S. equity underperformance relative to the rest of the world is dollar negative.
But for every one five percent drawdown in global equities, that's a one percent bid on this model. Historically, that's, you know, survived 2022, it survived 2020. So I put a decent amount of stock into it.
And so I think realistically, I think there is a reasonable bid for the dollar here. And that's against a backdrop of positioning that's not particularly favorable. The dollar is already long.
So I think the price action, you know, there from from my side is is generally encouraging. And look, I think the market really had an opportunity to really kind of lean into this theme because the dollar did generally what we expected on Tuesday night. There were signs of strong Democrat momentum early on in the evening.
Dollar traded down by about 50 basis points in DXY. You know, tech equities were reasonably softer. I think that all kind of like generally mapped to this to the playbook.
But the fact that like, you know, the dollar hasn't extended losses, even though the tech has obviously become much more problematic over the last 24 hours. Does suggest that there are other dynamics going on that you have to kind of differentiate, you know, dollar FX performance against what tech is doing idiosyncratically, per se. And then I would just say, you know, the other evidence that we've got in the last 24 hours going back to claims and then again, payrolls today, we're on pretty strong footing, I think, generally from a US cyclical perspective.
I totally take your point that data is not kind of like front of everybody's mind necessarily right now, like. You know, what risk does over the next week is going to ultimately be paramount for thinking about kind of FX beta and then also even, you know, Fed pricing through the end of the year, but we've been running at a three, three and a half percentage clip in third quarter, fourth quarter is looking OK. Inflation, obviously not coming down, obviously.
And then every component of payroll is effectively strong today. So it gives you some some hope and some confidence that even if like US equity exceptionalism is coming off the boil, the cyclical side gives you some degree of buffer. And so for me, between that and kind of the kind of the safe haven that we've seen for the dollar over the last 24 hours, I think that's reasonably encouraging signs for the dollar, especially, again, given kind of how it was trading weaker in the early signs of the midterm outcomes Tuesday night.
And I guess the other thing is, if I'm thinking about the two scenarios, you know, the equity does settle down. I think this can feel like quite a pro cyclical regime as well, because our equity strategists have actually noted that that following a gridlock, you can actually see pretty solid equity market returns. So if you get a basically a return to this environment where energy prices are lower, equities are holding up OK, this can be actually quite, quite good for pro cyclical currencies for carry over all, you know, in that scenario, I would be wary of being constructive on euro.
It's still not a great candidate to me. I mean, I can think of a bunch of other currencies in the euro block that that would be better candidates to be bullish on compared to the euro, because, you know, at the end of the day, for the eurozone, you still have to deal with the fact that you do have the French election coming up in April. And I think given the moves and OAT spreads, that's still going to keep people quite cautious.
So at the end of the day, euro is still a funder in that environment. So euro funded carry would be an interesting thing that probably continues in that environment. And in the in the more adverse scenario, if the equity doesn't actually settle down and extends, I think it makes sense to have some hedges on.
And, you know, that's something that we've liked for a while. Things like cross yen, cross Swiss sort of owning yen and Swiss is definitely an interesting offshoot. And it does, you know, maybe provide a bit more insulation against people who are more, you know, for people who are more skeptical about the dollar actually strengthening and an equity down environment.
But certainly those, you know, those those combinations of things, the yen Swiss crosses and the dollar still makes sense to me from a big picture standpoint. But, you know, moving on from this, I guess, Patrick. You've had the midterm outcomes and you've had the payroll outcome.
You know, I personally think it's really the equity market that's going to matter most. But, you know, if you didn't have to clean things, main takeaways from all these events, what what would you want to highlight here? Yeah, I think everyone at this point appreciates just the magnitude of the Democrat victory on Tuesday night, clearly across the House and the Senate.
What was less clear going in was how the governor races would shake out. And it does look like the Democrats also effectively swept across all key AI data center linked states. So not just Texas, but also Georgia, Ohio, Nevada.
And because of that, there's been a. Groundswell of kind of rethinking, you know, like find a single state might not be obviously able to kind of, you know. Derail kind of the stuff on its own, but, you know, just there's a sufficient kind of like rethinking of kind of the, you know, the extent to which it may be these states can actually effectively coordinate across policies where it does become kind of like a subtle national policy.
So, you know, things we've heard from the governor elects, they talk about guardrails, temporary pauses, halting tax breaks, you know, mandating coverage of utility costs, and then, you know, as aggressive as kind of like outright indefinite moratoriums. So there is still kind of a spectrum here, things to evaluate. Texas is still at the center of that.
So the questions we're left with are like, how long do the pauses last? Do existing builds continue? That's kind of our operating assumption, I think.
And ultimately, you know, how restrictive do these rules eventually become? I maintain that there are potential kind of like relief valves or outlets here as well. There are still states that technically, I think, lean a little bit more sympathetic to the build-out, places like North Dakota, which is one of the only states that didn't pass one of the local ballots restricting AI.
Other places like Louisiana that have some proximity to Texas. So a lot of moving parts. The Dems clearly outperformed expectations and to a degree such that like obviously we've had to rethink a little bit just the extent to which the policy pass-through is going to manifest more broadly here.
But nothing, you know, nothing's set in stone. It's going to take Congress and governors two to three months to actually settle into their seats still as well. So maybe a chance for kind of dust to settle here.
But yeah, I agree. We are ultimately still, you know, undergoing something of a rethink here, to your point, just given the magnitude of the surprise. And I think that's being amplified by technical factors, including deleveraging.
So FX still very much in play as it relates to kind of its beta to equity markets more broadly right now. Thanks a lot, Pat. And then, James, maybe we can turn to you.
You can comment on, you know, the central banks in your space this week. BOE was certainly on the more hawkish side of expectations. So, you know, Sterling continues to do pretty well.
And then any other big picture parts you have as well? Thanks, Vera. Yeah.
So, yes, Sterling, Bank of England was very interesting. You know, as you say, it was on the hawkish side, very hawkish vote with a 8-1, 50 basis point vote from Mann, you know, no votes to hold, only votes to hike. And the forecasts were very hawkish as well.
So growth, you know, above 2% for this year, we only expected 1.4. The peak of the CPI profile is 4.9. The market was only looking for about 4.25 on that.
So it did feel like, you know, Bank of England had been late to join the tightening party and slightly reluctant. And, you know, the data had got to a point where they had to really acknowledge that. And this felt like that meeting was a bit of a turning point where, you know, they're kind of catching up.
And, you know, what we've actually seen is the risk off since the midterms has actually kind of depressed some of the Bank of England pricing. You know, we've only got about 60 basis points the next summer now because of some of the risk off. So and Sterling's hung in there.
I actually I thought it would rally more than it did after the meeting. And, you know, obviously we've had a vent risk sense that has held things back. I think there might be some marginal concern around UK exposure to AI as well, which is something the Bank of England had had some work on in the in the documents they put out over the meeting.
But big picture, you know, I don't think this is this is going to hold Sterling back. You know, you've now got the favourable politics combining with, you know, Bank of England had been not not really much of a driver for Sterling this year. Obviously, the level of rates has been, but you haven't really had, you know, changing rates.
That's this. You know, Sterling's had to care about. So I think we're now very much at that point.
And I would expect, you know, you're a Sterling to to trend down from here. You know, there may even be, you know, it may even be kind of more prudent to look at Sterling versus some of the the risk off currencies, if, you know, if you're thinking about kind of more beta neutral currency pairs. But, you know, I think the euro sterling trend lowers is pretty, pretty intact here for the other European currencies.
You know. Noki, I think it's prudent to be slightly more neutral on here, given that, well, we do we do have Trump speaking tonight. Who knows what's going to happen there?
He could you know, he could declare a proxy end to the war. I mean, it wouldn't say it's base case, but I think that's something that he's been concerned about this week. We've had you know, we've been constructive on Nokia.
It's done reasonably well. And I think given the uncertainty around oil markets, you have to kind of step to one one side here until you get a bit more clarity. The Norges Bank was was marginally hawkish, but nothing to really write home about.
Inflation prints over the next few weeks will be important, though. And I think I think December is potentially in play for a hike from Norges Bank. But, you know, I would say oil is much more important for the currency here.
So I'd say slightly more neutral over the tactical horizon for the pairs like Noki Stokke and Euro Noki. Swiss is. I think we actually have come a fair way lower in Euro Swiss, you know, despite the chatter about, you know, potential S&B intervention.
And we did get some reserves data this week which suggested that they weren't involved in the market as much as people suspected that they may be in terms of pushing back on your Swiss downside. With intervention, I go back to the point we made about real money investors early in the call that I just think it's gonna be very difficult for them to engage in, as Mira said, in any kind of euro upside, particularly Euro Swiss, which with that being kind of the, you know, the premier safe haven pair in the region. It's just, you know, even if you do see French spread start to narrow, it's going to be very difficult for real money investors to engage in euro.
So if you look at Euro Swiss, it is running slightly cheap to things like growth revisions and equity internals now. But, you know, I wouldn't be I wouldn't be backing a kind of durable uptrend here. I think you can see retracements and that and those those will will fade given the risks.
And then Stokke, you know, Riksbank were marginally dovish this week. You know, they're kind of carrying through the September rate profile, which, you know, which doesn't suggest too much urgency in terms of the December meeting. And we did get a real downside CPI report in terms of core being point five below Riksbank forecast.
So for that, I do think Stokke is kind of caught between a few forces here. It's not as clear as some of the other currencies. I mean, you do have sticky U.S. real yields, which are probably going to see Stokke underperform the dollar, I think.
But then you do still have this funding rotation story that Mira has been talking about and EU stress as a factor, which I think can still weigh on the on euro crosses like euro Stokke, even if French spreads narrow. So kind of caught between a few forces. It is also obviously an energy importer.
And if we do get relief from the war, that could could help Stokke. So I think we come out of this kind of saying that Stokke can underperform the dollar, but outperform the euro still. Makes a lot of sense, James, and also, I think, you know, in this environment, it's probably still prudent to have some hedges on in the form of Swiss and yen for that matter as well.
So, OK, let's wrap it up there. Thank you very much for joining us today on Debate Corner. Please take a look at our publications if you need more information.
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 November 6th, 2026.
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