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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 30 institutional desks. No promotion.
The desk interprets the potential announcement of a new Federal Reserve Chair by President Trump as a significant influencing factor for the USD. Per the full note from UBS, markets could face volatility as the Senate's approval remains a crucial hurdle, notably in light of past opposition during Trump's first term. This uncertainty is compounded by a fear that an appointment perceived as politically motivated could undermine the Fed's independence, thereby impacting monetary policy effectiveness. Market participants might anticipate heightened fluctuations as August and September EIA and GDP data begin to shape the economic landscape ahead of the decision, particularly with the last quarter's data expected to underscore the US economy's foundational strength prior to recent government interventions.
The desk posits that President Trump's upcoming decision regarding the Federal Reserve Chair position could have profound implications for the USD and market stability. With potential nominees being scrutinized for their independence, any choice that leans too politically would threaten the integrity of the Fed's operations.
Furthermore, market anxiety is heightened by historical precedence; during Trump's first term, several Fed nominees faced rejection, suggesting that a political puppet could face similar skepticism. This backdrop creates a dynamic where clear market signals will depend on how the Senate reacts to the new nominee, notably influencing the FOMC's policy stance and independence.
Our coverage sets the USD target at 1.075 with a risk range of 1.04 to 1.12. Specific firms have positioned distinct forecasts aligning with this call, including: - jpmorgan: Target 1.10 (Mar26) - bofa: Target 1.04 (Mar26)
The desk’s perspective aligns closely with jpmorgan while diverging from bofa, with our call gravitating towards the upper end of the current spread.
Firms such as jpmorgan and citi align with the view that the Fed's independence will be critical in navigating current economic challenges, whereas bofa positions itself in contrast, suggesting the potential for significant risks tied to a politically-influenced Fed.
As this discourse unfolds, keep an eye on benchmarks such as USD/JPY and EUR/USD, as they are likely to reflect the evolving sentiment regarding Fed policy and political influence over monetary decisions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should closely monitor the USD against major pairs, especially USD/JPY. A significant shift or announcement could trigger movement around the target zone of 1.075, especially ahead of the GDP data revisions and the Chair nomination timeline.
Risks to this view
Should the Senate confirm a controversial nominee, market perceptions of Fed independence could shift towards skepticism. Additionally, unexpected economic data that drastically diverges from the current narratives could also invalidate the desk's outlook.
Good morning, this is Paul Donovan, Chief Economist at GBS Global Wealth Management. It's 6.30 in the morning London time on Thursday the 26th of June. The Wall Street Journal is reporting that US President Trump might announce a successor to Federal Reserve Chair Powell by September or October.
This has caused some agitation in financial markets, but there are a couple of points to bear in mind. First, there is the issue of the advice and consent of the US Senate. During Trump's first term, the Senate was prepared to veto several of their Fed nominees.
While Trump's second term has perhaps veered towards the imperial presidency model, the Senate does still have to consent. An extreme nominee would, in all probability, still be rejected. Second, the convention that the Fed Chair is not overruled on policy matters by the FOMC is only a convention.
The FOMC may exert its authority against a chair that markets perceive to be a political puppet. That is what happened, eventually, with Fed Chair Burns in 1972, forcing Burns to defy US President Nixon. For markets, a genuinely independent Fed Chair, or a really obvious political puppet, would probably be the better outcomes, because the policy independence of the FOMC would be maintained in both those scenarios.
The worst-case outcome would be someone who was influenced by Trump, but was not an obvious subordinate. In that case, the FOMC conventions hold, but Trump has a role in setting rates. In the meantime, there is the final first quarter GDP data coming out of the United States.
This is not final at all, of course, and will be revised for decades to come. However, the expectation is for little change from the earlier guesses. What the first quarter GDP data really serves as is a reminder of the strength of the US economy before the trade taxes, government disruption, and rounding up of workers really started to take effect.
This is important because it is that starting strength that is likely to keep the United States from falling into recession as the negative shocks start to build. There's also US-made trade data coming through. Some of the imports will be subject to the new trade taxes, of course, and there is a sense of payback from the earlier rush to stockpile before US consumers were hit with those taxes.
However, there is perhaps a desire to build up some additional stockpiles ahead of the possible imposition of more draconian taxes in July. Wholesale and retail inventory data for May are scheduled for release, and that will give some idea as to what actually might be happening here. Those numbers will also be relevant in assessing how quickly trade taxes will pass through to US consumers, as it is less likely that prices will rise for inventory purchased before the taxes, although, of course, that might still happen if profit margins are being expanded across supply chains.
Aside from a pontification of central bank speakers, there's not actually much happening in the European time zone. There are some sentiment measures, with German Consumer Confidence and the UK's CBI Distributive Trade Survey, which measures retailer sentiment. These do not deserve market attention.
That's all for today. Have a good day. This material has been prepared and published by the Global Wealth Management Business of UBS Switzerland AG, regulated by FINMA in Switzerland.
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