📝 USD Weakens 70% Of Time As Global Growth Improves: J.P. Morgan FX Strategy

Historically, we have noted that an improving global growth regime is usually associated with USD weakening 70% of the times.

Our analysis shows that 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. As a general rule of thumb, US yields are more likely to go up when growth is getting revised up (75% of the times). In such high growth-higher US rates combination, USD weakens by 0.6% in 60% of the times on average per quarter. These statistics are not bad, but less impressive when the improving growth environment is accompanied by falling US yields: USD weakens by 1.4% in 86% of quarters examined in those scenarios.

Given these less improved statistics, it would be prudent for clients wishing to engage in USD-bearish trades to do so once we get further clarity on terminal US rates in March.- J.P. Morgan FX Strategy