JPMorgan, a leading financial giant, has applauded the strength of the US dollar. The financial behemoth, in its newest report, has praised the US dollar’s resilience, adding how the USD has weathered multiple critical junctures to emerge stronger than ever.
JP Morgan further acknowledged the role of federal rate cuts, which have played an elemental role in stabilizing the US dollar’s reputation on a global level.
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Why Is The US Dollar Emerging Stronger Than Its Contemporaries?
Per JPMorgan, the US dollar has proven to be “remarkably resilient,” despite being presented with worsening US debt metrics and labor data. The financial behemoth was quick to note how the current rate-cut stance of the Federal Reserve has proven particularly favorable to upholding USD prestige on a global platform.
“This is now being challenged, and the corresponding de-pricing of Fed cuts has taken the dollar to new year-to-date highs. Put simply, the macro market narrative has shifted from ‘when’ to ‘whether’ the Fed will ease this year and has taken the dollar higher commensurately.” As stated by Meera Chandan, Global FX Strategist at JP Morgan
Other than that, Russia’s decision to cut oil valuations could also push up the price of Brent oil to 100/bbl, triggering a dollar value rally in the near future.
“In addition, commodities are once again top of mind for the FX space, as the complex has risen almost 7% off February lows. Furthermore, Russia’s decision to cut oil production could push Brent prices to $100/bbl in the coming months, which could benefit the dollar.”
The report highlighted the stark correlation between the dollar and oil verticals. Since late 2022, the dollar seems to be moving in sync with oil prices, working in tandem to deliver stable valuations.
“Such episodes fuel inflation while also pressuring growth, thus supporting the dollar.“ The potential move to $100/bbl would therefore be dollar-positive through the interplay of the dollar’s anti-cyclicality, higher headline inflation, and higher yields,” Chandan said.
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USD and Its Competitors: The Status
The report reiterated the USD rally propositions, further sharing that the firm is currently bearish on the Euro, British Pound, and Yen.
Meera Chandan, FX Strategist at JPMorgan, further shared that presently, the European Central Bank may cut rates sooner than the Fed, widening the interest rate gap between the US and Eurozone, and bolstering the USD in its wake.
“This will widen the interest rate gap between the U.S. and the Eurozone, putting downward pressure on the euro against the dollar.”
Similarly, JPMorgan predicted a bearish stance for the British pound, adding that the GBP/USD would reach 1.22 in June 2024 before climbing to 1.25 in December.
“Currently, sterling seems somewhat trapped between a potential dovish Bank of England (BoE) pivot on the bearish side and better U.K. and global growth data on the bullish side,” Chandan said.
