📝Expect EUR/USD to Fall to 1.03-1.05 In H1: J.P. Morgan FX Strategy

The motivation for our relatively bullish USD view (EUR/USD 1.03-1.05 in 1H is persistent US growth and yield exceptionalism. This outlook is unchanged.

The dollar˖s yield advantage will stay intact even with Fed rate cuts later this year, since this will be a synchronized easing cycle with just over half the central banks already cutting rates by the time the Fed starts and US yields spreads should

as a result remain relatively elevated. Thus, we continue to think that a Fed cut alone will not be sufficient for sizable USD weakness; one also needs growth outside the US to improve.

On the growth sleeve, the bottom line is that US exceptionalism isn't dead yet. Two issues are worth highlighting.

First, the growth outside the US, specifically, in the Eurozone and China, has stabilized which has been an encouraging development for USD bears. Stability is the precursor to any improvements and given this stabilization, our systematic growth models have also turned more pro-cyclical and bearish USD. But second, this stabilization doesn't automatically imply that US growth exceptionalism is over as US growth forecasts are even now being revised up that US productivity growth is outpacing that of other countries which could very well be indicative of structural differences that prevent mean reversion in the currencies If it persists, it would raise the fair value for dollar REERs, and as noted in prior publications, over the medium-term, the dollar has been unable to sizably weaken in extended periods of improving productivity. - J.P. Morgan FX Strategy