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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 views the recent easing of trade tensions between the US and China as a positive development for market sentiment and certain currency pairs, notably the USD. Per the full note from UBS, trade negotiations are reportedly moving to a 'dial down' phase, with significant tariffs on Chinese goods being re-evaluated ahead of a key meeting between Presidents Trump and Xi. This sentiment is underscored by the prospect of China potentially resuming purchases of US soybeans, a noteworthy change in trade dynamics that could buoy USD strength against other currencies. Given that there are no immediate calendar catalysts, traders may find potential in capturing volatility around real-time trade updates and political communications.
The desk assesses that the dialed-down trade tensions could pave the way for a stronger USD, particularly against currencies influenced by China's economic health. Per the full note from UBS, the elimination of the imminent 100% tariff threat signals a relief for US consumers and potentially stabilizes US-China trade relations.
Supporting this bullish view on the USD, the recent consumer price inflation data showed a lower-than-expected uptick at 1.4% for September, as reported by UBS. The observation of delayed Chinese purchases of US soybeans, in contrast to their ongoing imports from Argentina, serves as a key indicator of shifting trade patterns that could favor US economic recovery.
The overall bullish outlook for the USD aligns with our consensus target of 1.075 against the Euro. This falls within a range of 1.04 to 1.12, with specific targets noted by key firms: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
While jpmorgan and the desk’s outlook converge on a strengthening USD, bofa maintains a more cautious stance that suggests a potential challenge to bullish expectations.
Firms such as jpmorgan and cs hold bullish positions on the USD, aligning with the desk's view. Meanwhile, bofa takes a contrarian stance, offering a broader range of expectations that could see the Euro outperform the dollar.
Traders should keep an eye on USD/CNY as an immediate barometer, providing insights into the outcomes of US-China policy shifts. Additionally, developments regarding soybean trade will feed into broader supply chain sentiment across emerging markets.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Watch for any updates from the upcoming meeting between Presidents Trump and Xi, as developments could lead to increased volatility in key currency pairs. Current levels around 1.075 against the Euro will be crucial to monitor as sentiment shifts.
Risks to this view
A significant re-escalation of trade tensions or unexpected economic data surprises could invalidate the bullish outlook for the USD. Specifically, the introduction of new tariffs or negative trade remarks from either government could quickly shift sentiment.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning London time on Monday the 27th of October. In the on-again, off-again world of U.S. trade policy, the previous escalation of trade tensions with China seems to have now been dialed down.
Over the weekend, negotiators announced what is being termed a preliminary consensus, although some of the details may have to wait until later this week when U.S. President Trump is supposed to meet with China's President Xi. The proposed 100% tariff on U.S. consumers of China's exports is reportedly no longer a threat, and China's mooted U.S.-style controls on the export of rare earths are also reported to be delayed.
A U.S. official has further suggested that China may start buying U.S. soybeans. So far, none of the current U.S. harvest has been bought by China, though they have been enthusiastic consumers of Argentinian soybeans. The rare release of economic data from the States on Friday had September consumer price inflation coming in a little lower than the market consensus.
The good news was in the headline more than in the details, however. Data quality has again been flagged with, presumably, a shortage of staff leading to a lot of prices being imputed rather than actually measured. In a mirror image of the inflation of a couple of years ago, lower auto prices and lower owner's equivalent rent helped to push down inflation this time.
This matters to consumer sentiment. Autos are not something that is regularly purchased, so the car price changes may not be very visible to most consumers. Owner's equivalent rent is an entirely fictitious price, and in the real world, consumer spending power is not affected by its movements.
Things like audio equipment, which are imported, rose at the highest inflation rate ever, but this is also a lower-frequency purchase. Rising food prices, in particular dramatic price increases for specific items like beef, bananas or coffee, may get more attention, even if the actual damage to consumer spending power from these items is limited. Overall, this suggests that the US Federal Reserve does have room to cut rates, but without absolute certainty that inflation is being controlled.
In Argentina's mid-term congressional elections, President Mille's party did better than opinion polls had predicted. Once again, the problems of asking people what they think are on display here. The pundit's response is that the peso should rally on this, which will be a relief for US taxpayers, no doubt, allowing them to reverse some of their recent trading losses.
On paper, the peso is not in a position to have the US buying back the dollars it spent propping up the currency. Over the coming weeks, the question is the extent to which the peso was pressured by fundamentals versus political expectations. If fundamentals are still considered to be against the peso, then there will need to be signs that those fundamentals are changing if the currency regime is to avoid further pressures in the future.
Germany offers the IFO Business Confidence poll today and the ECB offers Inflation Expectations polls. Both numbers have questions about the accuracy of the responses from those surveyed. China's September industrial profits rose quite strongly.
This is not a market-moving number as a rule, but it does rather suggest that China is not dumping goods in international markets. Dumping involves selling goods at a loss overseas, undermining foreign competitors. That practice is not consistent with the idea of rising profits.
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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