Dollar’s fate hinges on U.S. growth outlook: SocGen's Kit Juckes

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The dollar is stuck in a holding pattern, with its next move dependent on how expectations for U.S. growth evolve in the coming weeks, said Kit Juckes, foreign exchange strategist at Société Générale.

In a note to clients on Sunday, Juckes said the greenback continues to trade nervously in ranges, with markets torn between the U.S. administration’s push for a weaker currency and patchy economic data.

“Dollar bears have a not-so-secret weapon in the U.S. administration’s desire for a weaker dollar,” he wrote, reiterating SocGen’s call for the euro to rise above $1.20 next year, though not as high as $1.30. The bank also calls for the yen to strengthen into the 130s against the dollar. Emerging-market currencies should also benefit, provided the United States avoids recession and Treasury yields remain stable, he added.

MIXED SIGNALS, DIVIDED VIEWS

Investor sentiment, Juckes noted, remains split. Many clients see further dollar weakness ahead, but a vocal minority prefers to buy at current levels, unconvinced that U.S. growth is slowing meaningfully.

Among favored trades, the Australian dollar ranks highest, albeit with muted expectations, while sterling remains broadly unloved. Asian currencies, weighed down by sluggish growth and low rates, have yet to capture local enthusiasm, sentiment that turned gloomier after weak Chinese data on Friday.

GROWTH OVER RATES

With traditional correlations between FX, rates and risk appetite breaking down, Juckes argued that currencies are increasingly trading on shifting growth expectations. That leaves markets vulnerable to outsized reactions when August ISM and labor reports are released. He also cautioned that while many investors doubt the reliability of official data, U.S. jobs figures remain more robust than those in the U.K.

POLICY IMPLICATIONS

Juckes pushed back against recent market reactions to U.S. inflation releases, arguing that tariffs are the “Achilles heel” of the economy: higher import costs mean weaker growth. While July CPI data offered some relief, he warned that tariff effects will feed through with a lag.

Looking ahead, Juckes sees “plenty of upside to prices in the short term, and plenty of downside risks to the U.S. economy” in the months to come. He expects the Federal Reserve to continue cutting rates, especially if the August payrolls report disappoints.

“If the August NFP report is weak, I would signal two precautionary 25-basis-point rate cuts and wait for President Trump to tell me how behind the curve the Fed is,” he wrote.

Juckes also reflected on Fed Chair Jerome Powell’s tenure as he heads into what could be his final Jackson Hole appearance.

“He has presided over an economy whose average growth rate has been 2.7% and CPI inflation of 3.3%. That doesn’t look too hawkish at first glance,” he said.

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