USDJPY is likely most affected if US rates have indeed peaked – JP Morgan

JP Morgan analysts hold onto their medium-term bullish bias for the US Dollar in the latest report.

Key quotes

The durability of a broad USD sell-off is fragile with macro uncertainty near 5-decade highs and the dollar yielding more than half of global FX.

Growth momentum outside the US has admittedly neutralized, but not out of the woods yet.

USD performance around the last four Fed pauses was not consistent and growth-dependent; more consistent was the decline in US rates regardless of the growth outcome.

USD valuations are rich but odds of a US recession have not been so high before the Fed is done hiking since the 1970s," JPM notes.

The mix of growth/ inflation surprises matters for composition of USD moves. Such high odds of a US recession keeps us more cautious on high beta FX but USD/JPY is likely most affected if US rates have indeed peaked.

Also read: USDJPY Price Analysis: Bulls tread with caution as bearish coil dominates