Sell-Side USD Updates

US banks provide an update on the broader USD. The backdrop is still favorable, albeit mindful of event risks this week.

J.P. Morgan: "Spillover from EM elections dominated FX this week, with MXN depreciating 7%. This bled into G10 via deleveraging of carry positions, boosting JPY & CHF.
Proxies suggest one-fifth of some carry positions may have been unwound.
Strong US payrolls presents a challenge to perceptions of fading US exceptionalism, and the rotation of regional growth by extension. JPM economics now calls for a Nov Fed cut.
USD continues to track US yields, including after the payrolls revision. We evaluate USD-rate sensitivities ahead of next week’s FOMC & CPI.
BoC kept the door open for more policy divergence, but rates moves and short CAD FX positioning are advanced; risks are more balanced for CAD than a month ago.
ECB’s first cut doesn’t move the needle on EUR.
Trades: Keeping pro-cyclical and USD positive exposure lighter than usual into another event risk heavy week. Stay long USD vs EUR, CNH. Hold long AUD vs JPY, CHF basket. Keep short CHF vs USD, EUR. Hit take-profit-stop on short CAD/NOK."

Goldman Sachs: "Dollar in demand. The broad Dollar is back near 2024 highs following the carry trade shake-up and strong US data. On the domestic side, this was the first net positive week for our US MAP surprise index since mid-April. That stabilization, and particularly the resilient labor market, should help set a firmer tone for the Dollar into the FOMC next week, where we expect the Committee will not be able to match the tone set by other central banks (not to mention the policy actions, with rate cuts now under way for a good part of the G10). Still, with gradual progress towards a better balance, the Fed should not be far away from the ECB and BoE. But, this is an increasingly small group, as inflation progress has been clearer elsewhere. When combined with still-strong asset returns, and a clear appeal while markets digest the carry trade disruptions, as well as the upcoming election uncertainty, we still think the Dollar will prove to be the ‘safest haven’ for portfolio flows over coming months."