Taking a step back, there have been two pillars of USD strength since 2021- high US yields and poor growth outside the US (aka US growth exceptionalism). The first pillar had already been diluted with the Fed’s shift away from incrementalism, but it left intact the second one even with the US moderating, given how soft EMU and China data was. The reason China stimulus measures could then be important is that should sizable stimulus materialize, it would weaken the second pillar as well and move FX markets to the middle of the dollar smile associated with broad USD weakness (first scenario in which the US avoids recession, but EMU/ China growth stabilize or improve). This could be particularly potent given the context that (a) our global growth signals based on economists revisions have recently gone from being defensive to more neutral, (b) the Fed is cutting and US yields are in a lower range, and (c) energy prices are lower on supply, all at the same time. - J.P. Morgan Strategy
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