Global FX: USD pre-Fed, EM movers, GBP & cross-border M&A
The desk suggests that the USD is poised for appreciation ahead of the upcoming FOMC meeting, bolstered by recent bullish sentiment and positioning indicators, as outlined by J.P. Morgan's latest commentary. Per the full note, there are notable bullish dynamics surrounding the USD, fueled by investor anticipations of potential hawkish signals from the Federal Reserve. With key currency pairs showing volatility, traders are advised to monitor these developments closely as market positioning evolves leading up to the Fed's decision.
What the desk is arguing
The desk argues that the USD is likely to strengthen ahead of the FOMC meeting, driven by shifts in market sentiment toward potential Fed hawkishness. Per the full note, recent positioning trends indicate an increased appetite for USD exposure among institutional investors, as uncertainty around economic data releases fuels speculation on monetary policy direction.
Supporting this view, J.P. Morgan's analysts point to the current strength in U.S. macroeconomic data as a catalyst for a bullish dollar outlook, anticipating that a convincing performance might lead to a reassessment of Fed policy in the near term. The firm underscores that any surprises from the Fed could provide further impetus for the greenback, especially if inflationary pressures persist.
Where it sits in our coverage
Our consensus target for USD trading around 1.075 suggests a moderately bullish outlook, aligned with J.P. Morgan’s projection of 1.10 for March 2026. The following targets from notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's bullish stance aligns closely with J.P. Morgan's estimates, positioned near the upper end of the range outlined by our current consensus. This suggests a predominant sentiment leaning toward USD strength in the short to medium term.
How other firms see it
Firms such as jpmorgan express a similar bullish inclination towards the USD, supported by macroeconomic indicators. In contrast, bofa holds a more bearish outlook, projecting a lower target of 1.04 as they anticipate weaker US economic performance relative to other major economies.
Observing dynamics in key pairs such as USD/JPY and EUR/USD may provide additional insights, particularly in relation to anticipated Fed actions versus responses from other central banks, like the BoE's stance on GBP valuation.
01Bullish sentiment for USD is building as the Fed meeting approaches.
02Market positioning indicates a readiness for potential Fed hawkishness.
03Potential M&A flows may influence cross-border currency movements.
04Traders should monitor key data releases that could sway sentiment.
Market implications
Watch for any updates from the Federal Reserve regarding interest rates, as this could serve as a significant market mover. A breach above the 1.10 level could signal stronger USD momentum, while any dovish signals might challenge this bullish outlook.
Risks to this view
A sudden shift in economic data that points to slowing growth or lower inflation than expected could challenge the USD's bullish trajectory, prompting a reevaluation of monetary policy ahead of the Fed meeting.
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, joined today by several FX strategists, Patrick Locke from New York, we've got Octavio Pesco and Anastasia Krzysztofowa from Paris and London, respectively, and we're going to talk about a few things for next week. I guess as far as FX markets go, two main focal points, first is the resurgence in energy prices, and relatedly, we've seen a further hawkish repricing for several central banks, including the Fed. Now, last week, we made the point that conviction in the, you know, the more constructive dollar view had come off.
The only factor that has kept us, that had kept us committed, really, to the view was the extent of Fed hawkish that we were seeing. For example, the two-week change in the Fed's hawkish score index on NLP-based models was the largest since 2022, and that was giving us one clear signal as far as the dollar's concerned, and that was really the only reason to stick with it. Now, needless to say, this backdrop around higher energy prices has sort of added fuel to the fire and really has ended up in a manner that's been more supportive for the dollar.
Now, how long this continues, it's hard to say. The energy price story, what we do know is that we have prior pain thresholds for the U.S. administration. Our energy strategists are basically making the point that if disruptions continue for another month, then the average gasoline prices in the U.S. is likely to rebound to $4.20.
If that goes up to two months, then the prices could go back to $4.50, and that threshold really does matter because as gasoline prices reached up to $4.20 and then went up to where it reached $4.50, that's when more sort of aggressive negotiations and vigorous negotiations have started. So that's kind of the markers that we're looking at. I think what's notable to me is a couple of things, actually, is firstly, some parts of the energy market are actually making new local highs even if oil isn't at its absolute highs.
For example, TTF gas prices, I think, have already exceeded the highs we saw in March, and that's obviously quite problematic for the euro and sort of adds to sort of the more intense weakening pressure, I guess, for the euro for energy importers and Asia as well. And of course, our preference has been to use euro as a funder. And second, I would say is that the rates pricing for the Fed is actually showing sensitivity to oil only when prices are going up, not when they're coming down.
So when we saw actually energy prices come down in June, the Fed terminal didn't really follow in lockstep, but now we're seeing the reverse as energy prices have resumed higher. So that's an interesting dynamic. It's very much in contrast to, for example, what the market is doing for the ECB pricing, and it's keeping the dollar pretty well supported.
So I think from our point of view, still constructive, generally speaking, on the dollar pre-FOMC. But let's break that down because next week we get an important meeting. Patrick, maybe we'll start with you on the Fed.
The market is pricing in, I think, now more than a third of a chance of a hike for next week, which is interesting. What's the main things FX folks should focus on going into this meeting? Yeah, thanks, Meera.
I think the setup is really interesting. The Fed meeting is certainly looking pretty live for the FX space, which is a pretty notable turnaround from the last, maybe call it two weeks ago. I mean, you and I have been lamenting that you had kind of a softish non-farm payrolls print early in the month.
It wasn't bad, but it was below expectations. You had negative backwards revisions, so kind of a run rate of job growth momentum looked to be a little less strong than we had kind of been expecting. And then obviously, the CPI print was pretty dramatically soft, of course, CPI was small as negative.
So, I mean, you were kind of sitting here saying like, oh, maybe that's, you know, dollars just kind of consolidate here for a minute. But as you kind of suggest, Fed pricing for the July meeting is actually ramped up pretty seriously in the last, call it one to maybe two weeks. Last I checked, we were pricing about nine basis points of a risk premium for a hike this meeting, which is 40-ish percent.
So getting kind of close to that kind of toss-up range. So there's a lot to play for, I think. And, you know, why is that kind of repricing happened?
You know, a few things. One, I think the market is also recognizing that, you know, maybe the core CPI is not broadly kind of consistent as a holistic disinflationary signal. As we kind of flagged here last week, PCE is not tracking quite so weak, still kind of in that 20-22 basis points month over month in the core PCE figure for next week.
As you say, hawkish Fed speak, still very much intact, people not obviously leaning into the CPI print. And then you've had kind of, you know, some maybe like second tier data that's come out pretty decent as well. Claims this week may come in multi-decade low.
So maybe suggesting that the, you know, the forward-looking expectations for unemployment still look like they could be falling. And so basically, again, we're priced for about nine basis points in the meeting. The way we're going to think about trading the dollar on the FOMC is really kind of like about descents.
This obviously in an SEP meeting, so you don't get the forecast, you don't get dots per se. But, you know, a couple of recent speeches definitely suggest that, you know, one or two voting members might be willing to go against the grain and call for a hike now, just given kind of the broader backdrop of labor market and inflation in the US. I generally think that a couple of descents would be dollar positive on the day, and any more than a couple, three or more, I think would certainly be very constructive for the dollar.
On the other hand, even if you only get one or maybe even zero, I don't think that's necessarily bearish, given that I don't think, you know, a whole lot's going to come out of rates pricing for the end of this year on the back of that. But I think, you know, if you do get some descents next week, I would expect the dollar to rally on that. The question is kind of like, where does that get priced in kind of the rate strip?
We're already more than fully priced for a hike by the September meeting. So maybe you get your price more kind of into the back end of this year or in the early next year, maybe taking the terminal up a little bit more. But either way, I think if the voting committee seems to suggest that they are increasingly uncomfortable with the landscape, I would expect that to be dollar positive on the day.
Thanks for that, Patrick. I would say that, you know, the key thing for me is that even if the rates market is fully priced, the fact that the dollar is on the shooting dates is a meaningful thing to keep in mind. So that's what I'm focused on from an FX standpoint as well.
And of course, the descents, I think, are going to be quite relevant here. OK, thanks. Thanks for that update.
Anoushka, can we move to EM now? I think pretty notable price action from ZAR. I guess we had a, you know, surprise from the SARB.
Do you think it's a big deal? And then Chile as well has underperformed. And finally, EuroHUF's been heading higher.
I know HUF has been one of the higher conviction views here. So any updated thoughts on that? Right.
So I would first like to put it a little bit in a context. We all agreed that the carry theme is very important here. But in several of the currencies that we sort of look at as carry currencies, at this moment, the carry is not particularly a large buffer.
And for that reason, what the central banks are telling us, the way they are guiding us to additional hikes is, I think, very important. And South Africa is a perfect example of that, where in its own right, the carry is not particularly large. But what we have benefited from over the past, I would say, a few months was a clear hawkish bias of the central bank, providing a certain guidance for the hikes and responsiveness to upside risks to inflation.
Now, it was very interesting to actually notice that that was also very much reflected in the models that we run for South Africa. RAND was pretty much consistently trading about one standard deviation rich to models and quite consistently. And I think it was very much related to this central bank commitment.
From that point of view, I think it is very important that SARP surprised Dovishly yesterday. They did not hike despite an upside surprise in inflation expectations, upside surprise in actual inflation, as well as the more worrying components such as services. From that perspective, it is quite natural to now see RAND kind of trying to catch up on the fair value and moving away from the positive risk premia that it was able to trade with.
Going forward, I would not completely lose hope. I think SARP generally tends to realize when things go wrong. Part of the reason they felt comfortable staying on hold, actually what they said was that the currency stability itself encouraged them to do that.
I don't think they appreciated enough how much the currency stability in turn relied on their hawkishness. So I wouldn't completely lose the hope that, let's say, in coming months, they turn back more hawkish. But at this moment, we just have to acknowledge that they are not providing us with that appropriate guidance, making RAND more sensitive to the global risk environment.
Regarding the other ones, too, I think nothing near term as a specific trigger, but it falls very much into the category where perhaps we need to see a bit more of a local driver to improve the carry outlook, because it is a relatively lower yielding currency and the more kind of natural funder. Finally, in Hungary, it is a slightly different case. Central Bank is dovish, but you could justify that dovishness based on a true and kind of repricing of risk premia that we actually agree with.
After the elections, the currency can afford to reprice risk premia lower and central bank cutting is part of that as before they had to offer much larger premia versus the rest of the region. Now, having said that, I would very much emphasize that in CEE we are seeing a lot of inflation stickiness in core inflation. And I think almost neither of these central banks can afford FX to turn against them.
So I think we've already seen the central bank getting a little bit worried about levels, not in a particularly dramatic fashion. But I think that would very much change if you were to trend higher. So I think we still have here, I would say, a very stable pattern where we have a feedback loop that more currency weakness would likely make the central bank much less dovish.
Thanks a lot for your comments on that, Aneshka. Octavia, let me turn to you next. You obviously had a fair bit of hard performance from Sterling now.
What's the view going forward? Yeah, we've been constructive on Sterling for some time. But early this week, we noted that it hit stretched levels relative to fair value.
So the two pence cheap threshold on Eurosterling, which we had highlighted as a guidepost, similar to the post-trust and post-2025 budget risk premium reductions in size. So that called us to turn more tactically cautious. Turning to the BOE next week, it's not expected to be a major meeting for the currency.
The bank rate should stay unchanged, which is priced by markets with only two basis points. And we're looking for a 6-3 vote split. The data picture so far is mixed, but tilts dovish at the margin.
So growth is tracking below the BOE's Q1 forecast. And inflation is also coming in below their projections, which, you know, limits how hawkish the MPC can be. But overall, the guidance should still strike a balanced, incrementally hawkish, but balanced tone, likely keeping a standing ready to act tightening bias considering the recent moves in energy prices.
So the bottom line is we're more neutral on Sterling now and looking at future developments for the next thinking. Thanks a lot for that, Octavia. Yeah, we also have, I suppose, the BOJ next week.
We don't have Junia on, but, you know, I think his bottom line on Yen and BOJ is basically that, you know, he thinks it's unlikely at this stage that the BOJ will deliver clear communication on accelerating the pace of rate hikes. Obviously, it's going to be an event to watch, but we suspect, you know, it's not likely to turn the tide for Yen. I think the more relevant issues here are still going to be, you know, that we are on intervention watch.
So, you know, keep our eyes peeled for anything on that front or, you know, obviously the GPIF has been the big story that we've been covering quite a bit. But at this rate, it looks like we seem to be on track to sort of get to the mid 160s on dollar Yen. So that's the central banks, I suppose, for next week.
But, Octavia, this week you also had published an interesting note on cross-border M&A inflows. What are the high level takeaways there for FX folks? There's three main things that stood out to me.
The first is that Sterling is one of the biggest beneficiaries globally, and we're seeing net M&A inflows really bolstering the improvement in the basic balance that we've seen over recent quarters as well. And with many deals actually still pending completion, there is, you know, a pipeline of potential FX inflows that are still to come. So we're keeping that in mind.
The second is that Swiss is on the other side of that with the largest outflows globally and the pace recently accelerating. And that compounds the narrowing current account and, you know, is contributing to an erosion of the basic balance that we've seen in recent quarters. And it means that this deterioration can give way for cyclical drugs to increasingly prevail over the balance of payments with the barter carry headwinds.
And the third point is that the AI boom is not translating into M&A inflows into the US for now. And that's unlike what we saw in the dotcom boom, where the US saw net M&A inflows peak at 2 percent of GDP, whereas now the US is currently only seeing small net outflows actually of 0.6 percent. And so the AI narrative is not yet translating into a cross-border M&A story for the dollar, but it's certainly something to track going forward, because back then FDI was meaningful.
That's quite interesting, Octavia, and this, of course, comes amid a pretty big step up in cross-border M&A activity. So just worth keeping an eye on. And I think for the US, we did say that, you know, it's ultimately the FDI inflows that will matter as far as this AI boom is concerned is the more meaningful indicator to track.
So the fact that it's actually not going up from a cross-border standpoint is interesting as well. So let's wrap it up there for this week. And please take a look at our website for additional information on our research views.
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 July 24th, 2026.