The spoiler alert for this post is that JPMorgan say:
- "We think it is prudent to keep overall USD exposure light pre-FOMC.”
JPM cite the usual suspects for the strength of the dollar:
- tightening labour markets
- firm inflation
- repricing of central bank
JPM say this is making 2023 similar to 2022, but there are key differences:
- global growth momentum is still positive
- slowing pace of hikes from central banks
Which is keeping the USD down from its 2022 peak, even while expectations for a higher Federal Reserve terminal rate are rising.
JPM conclude, to revert more fully to 2022-style USD strength, we need to see
- another volatility shock
- or a re-escalation of geopolitical risks
And thus:
- "Historically, when growth outside the US is getting upgraded, the dollar still weakens even if US rates rise, but in smaller magnitudes and with lower hit rates. We think it is prudent to keep overall USD exposure light pre-FOMC.”
The Federal Open Market Committee (FOMC) meeting is March 21 and 22:
