Intro
Meera Chandan drops the podcast's usual debate format for a deep dive into the euro area's improving growth picture with J.P. Morgan's head of Western European economics, Greg Fuzesi, then sets out the FX desk's back-to-school currency themes and hands to New York-based strategist Patrick Locke for the week's US data and the Jackson Hole reaction.
Host: Meera Chandan, co-head of FX Strategy, J.P. Morgan
Also on: Greg Fuzesi, head of Western European economics, J.P. Morgan; Patrick Locke, senior FX strategist, J.P. Morgan, New York
Published: 28 August 2026 on At Any Rate
Key Takeaways
The euro area macro improvement has been hidden behind the US news flow
J.P. Morgan's activity surprise gauges for the region are at three-and-a-half-year highs while the equivalent US reading is close to neutral
Euro area growth is running above potential, and the pickup came despite the Middle East
"So PMI signal currently 1.4%. The average of the last three GDP prints is on an ex-Ireland basis around 1.3%. So, it is above potential." — Greg Fuzesi
Germany has gone from two and a half years of stagnation to around 1.5% growth
The deficit on the Maastricht definition has widened from close to 2% to around 4%
The German fiscal impulse is worth roughly 2% of GDP over a year and a half to two years
Fuzesi: a 2% widening of the structural position, a multiplier close to one, and Germany alone — everyone else is consolidating
A September ECB hike is effectively settled; a third hike is not
"I mean, it just makes a September hike an absolute no-brainer. I think that's almost a done deal." — Greg Fuzesi
Chandan likes the euro area growth story and still will not chase euro/dollar
Short-term models put fair value closer to 110 or 113, a long way from where the pair trades
Carry is the single back-to-school theme, and it is global rather than European
"They've already delivered 7 to 12 percent year to date, but there's no reason why that can't continue." — Meera Chandan
She would borrow in the euro and the Swiss franc, with the yen the one low-yield exception
A tactical window on Japanese policy could let the yen outperform other low yielders
Jackson Hole was dollar-positive and flattened the curve
"We've had twos higher, tens, thirties a little bit lower. So you've basically had a bit of a twist flattening from pre-speech levels." — Patrick Locke
September Fed pricing has moved from 8 to 10 basis points of premium to around 12, which Locke reads as close to a 50-50 call
A Deep Dive Instead of a Debate, and the European Data Behind It
Chandan opens by retiring the format the last two FX episodes used, saying the heavy macro week and the long weekend left more room for introspection and for one subject
The subject she picks is the steady improvement in the euro area macro story, which she says has grown more entrenched in recent weeks while being overshadowed by the US
She runs through the evidence before handing to Fuzesi: the desk's economic activity surprise indices for the region are at three-and-a-half-year highs, the data is beating consensus, and the purchasing managers' surveys have rebounded
She notes Fuzesi has now removed half the growth downgrades the desk made after the US-Iran conflict, and calls that astounding given where European gas is
"I've been tracking your growth forecasts in the FRI index that we have" — Meera Chandan
"with TTF gas still sitting at the highs, actually heading towards 70" — Meera Chandan
Her question to Fuzesi is deliberately structural rather than directional: is the uplift broad-based across sectors and regions, and where does it go from here
Greg Fuzesi on Where the Growth Pickup Is Actually Coming From
Fuzesi says the desk came into the year with a constructive view on euro area growth and has largely been right, with the Iran war the one detour
The prior two years ran around a 1% pace, in line with potential, despite the trade war
The 2026 forecast had euro area growth accelerating to about 1.75% by the second half, on fading trade uncertainty and German fiscal policy
The Iran war forced forecasts lower through higher energy prices, and some investors feared the ECB would then hike into a fragile region and finish it off
The incoming data has stayed solid, and the last three quarters show acceleration off that 1% baseline
"So PMI signal currently 1.4%. The average of the last three GDP prints is on an ex-Ireland basis around 1.3%. So, it is above potential." — Greg Fuzesi
"the striking thing for me is that the pickup in the PMI in July and August happened despite the reintensification in the Middle East" — Greg Fuzesi, who argues a counterfactual without it would look firmer still
He goes further than Chandan's framing: rather than simply reversing the downgrades, he says near-term risks are still tilted higher
There is no single driver — several parts of the economy are contributing at once
Germany from stagnation to around 1.5% growth; the consumer smoothing and spending; better corporate indicators
German exports are up 9% annualized in the first half of the year, which he sets against a list of structural challenges and problem areas the data is holding up in spite of
Chandan's reaction is that the numbers are small in absolute terms and large for the region
"1.3% or 1.4% for the Eurozone as always gets people excited. So I know it's not a lot, but it's a lot for the region." — Meera Chandan
Germany's Fiscal Story in Three Parts: Defense, Infrastructure, Reform
Chandan frames the fiscal question around the German constitutional U-turn 15 months ago and the skepticism about whether the money would go to productive uses
Fuzesi's headline evidence that delivery is real is the deficit itself: on the national accounts, Maastricht definition, it has widened from close to 2% to around 4%, alongside a return to growth after roughly two and a half years of stagnation at the GDP level
Defense is the part he is most comfortable with, because it shows up in hard data rather than in announcements
Momentum in the flow of orders is visible in the monthly industrial orders report
The manufacturing output purchasing managers' index for Germany has risen six points over three releases, and companies in the survey attributed part of that acceleration to defense spending coming through
Infrastructure is the part he cannot track, and he is explicit that the money is being raised rather than seen
"The second part is infrastructure, which is a bit of a kitchen sink of anything with shelf life." — Greg Fuzesi, listing digitalization, hospitals and education alongside roads and railways
Construction indicators are still not lifting clearly, though he says the political pressure to make it work is big enough that he does not doubt it arrives
The third part is the reform effort, which he treats as the channel into business confidence rather than a spending line
He credits the government with changing the narrative through a pension reform that still has to clear the Bundestag
Putting a Number on the German Fiscal Thrust
Chandan pushes for metrics: is the deficit the right thing to watch, or the fiscal thrust, or the contribution to growth
Fuzesi's answer is a two-percentage-point widening in the structural position over about a year and a half, multiplied by something close to one
"kind of a 2% widening of the structural position with a multiplier close to one. I mean, you are getting a GDP impact of close to 2%." — Greg Fuzesi, who puts it as spread over a year and a half to two years and calls it "pretty punchy"
He hedges the multiplier on private-sector buy-in, which is where the reform story earns its importance
His view is that it should be close to one, probably a bit lower, but not much lower
This is a German number and not a euro area one, and he says so unprompted when Chandan checks
Everyone is trying to do more on defense, he says, but most of the other countries are trying to absorb it within their existing budget plans while still consolidating
Why the September ECB Hike Is a Done Deal and the Third One Is Not
On the ECB's two variables, Fuzesi separates a clear surprise from a murkier one: growth is surprising the central bank to the upside very clearly, while inflation is landing closer to its own expectations, which is above target
Stronger growth cuts the risk that a hike chokes off the economy, and with inflation above target that combination settles September
"I mean, it just makes a September hike an absolute no-brainer. I think that's almost a done deal." — Greg Fuzesi
He is explicit that he is not convinced beyond September, and says twice that he is dragging his feet on a third hike
The pricing components of the business surveys are coming off again despite the renewed energy story of the last couple of months
"there is still this possibility that a Goldilocks type scenario reemerges, which is what we had as a forecast before the Iran war" — Greg Fuzesi
Fuzesi then turns the microphone around, asking Chandan what all of this means for the euro against the dollar
Why Chandan Will Not Chase Euro/Dollar Higher
Her starting point agrees with him, and it is about growth rather than rates: she treats the euro as a growth currency, so Fuzesi's growth story is the piece of the puzzle that matters
Whether the ECB hikes once more or twice more is, in her words, less meaningful for the currency
The gap she says FX strategists have to be mindful of is between European activity surprises at three-and-a-half-year highs and a US reading close to neutral — doing fine, in her description, without beating expectations by much
Four things stop that procyclical narrative becoming a long euro/dollar position, and the first is that the US is holding up too
The market is still pricing a hiking bias for the Fed, and the desk's own economists look for the same later in the year
That, she says, holds off broad dollar weakness
Second, the growth improvement is not a European story at all
Growth is holding up very well globally, and ranking forecast changes puts the eurozone middling against candidates with larger revisions, especially adjusted for historical volatility
Third is the euro's yield disadvantage
"the carry deficit in the euro is still a problem. It's a low yielder in the grand scheme of things." — Meera Chandan
Fourth is valuation, and it is the one with a number on it: short-term models put fair value well below where the pair trades
"fair value on some of the short term models is closer to 110 or 113, basically pretty far away from where euro dollar is right now" — Meera Chandan
She ties the mismatch back to energy prices and to the same European gas benchmark she raised at the top of the episode
She is careful not to turn this into a bearish call — if the Fed's terminal rate ends up lower, she says euro/dollar strengthens, no doubt about it, and she ultimately expects the pair to stay in tight ranges
Her preference is to borrow in the euro against higher-yielding procyclical currencies rather than to own it
The Back-to-School Theme Is Carry, and It Is Global
Asked what the desk has high conviction in, Chandan names one thing and repeats the word to make the point that it is not regional
"To me, the single biggest theme is the procyclicality and its global procyclicality. Growth is good everywhere." — Meera Chandan
Her mechanism is straightforward: growth is good, rates stay high for long, and the yield gaps on carry baskets are wide
"They've already delivered 7 to 12 percent year to date, but there's no reason why that can't continue." — Meera Chandan
Within that, she still prefers baskets that borrow developed-market currencies to buy emerging-market ones, which is where the euro earns its role
She does not think the trade is crowded, which matters for a theme that has already paid
Which Currencies She Would Borrow, and Which She Would Own
On the developed-market side she leans constructive on the Australian dollar, and puts the US dollar itself on the high-yielding side of a carry basket
The currencies she would borrow in are the euro and, above it, the Swiss franc
"the Swiss franc is probably one of my favorite funders" — Meera Chandan
The yen is the one low-yielding currency she carves out, and the reason is policy rather than valuation
"we have a very tactical sort of window here where certain policy issues in Japan could actually make it do pretty well versus other low yielders" — Meera Chandan
On emerging markets she defers to a colleague rather than claiming the view as her own
"our EM team, Anushka, has been quite constructive" — Meera Chandan, on positions in Latin America and in Europe, the Middle East and Africa
She singles out central Europe as the direct expression of Fuzesi's German argument
"currencies like Czech, where they are higher beta than the German story" — Meera Chandan, saying that should lean constructive
Her summary position is neutral on the dollar overall
"premature to chase the dollar sort of bearish view here due to valuations and the Fed maintaining a hiking bias" — Meera Chandan
Carry, she says, is by far the biggest procyclical theme going into September
Patrick Locke on Jackson Hole, the Curve and What Is Left Before September
Chandan hands over flagging the week's US calendar — core PCE, other data, Warsh, Jackson Hole, and payrolls next week
Locke's read is that Jackson Hole delivered more information from the Fed chair than the market had probably expected, and that the response was unambiguous: a dollar rally against essentially the whole currency complex
The shape of the move is what interests him most: the two-year yield higher, the 10-year and 30-year slightly lower
"We've had twos higher, tens, thirties a little bit lower. So you've basically had a bit of a twist flattening from pre-speech levels." — Patrick Locke
He calls it the mirror image of the July FOMC press conference, after which the dollar was sold very hard
September meeting pricing has repriced with it, and Locke reads the result as close to even
"We were kind of trading 8 to 10 basis points of premium through the middle of this week. That's moved up closer to 12-ish now, it looks like, on the screens." — Patrick Locke
He connects that to the chair acknowledging solid data in a general sense while tilting more sensitivity toward inflation
The week's inflation print was firm, and on a momentum basis it sits above where the Fed wants it
"core PCE came in 25 basis points, still pretty firm in a general sense" — Patrick Locke
"three months, six month annualized, still hovering in that 3 to 3.5% kind of territory" — Patrick Locke, adding that the chair seemed to acknowledge that was not consistent with what they are trying to achieve
The rest of the US data pushed the same way: jobless claims still running really low, and real consumption flat, but the desk took its third-quarter consumption and GDP forecasts up to about two and three quarters
The currency link he flags is the dollar index tracking September pricing, which puts the next two data points in charge
"right now it looks like consensus is around the 50k mark, 4.1%" — Patrick Locke, on the payrolls report, while noting the desk is still collating its own expectations
He is not sure the jobs number moves the needle on its own, and says a lot now rests on payrolls and the CPI print before the September meeting itself
He closes calling the week's US developments material and dollar-positive
The euro area's growth story is good enough that Fuzesi thinks the ECB hikes in September without much argument, and still not good enough for Chandan to buy the euro — she would rather borrow in it and own the higher-yielding currencies that a globally strong growth backdrop is paying.
Products, Companies & Tools Mentioned
J.P. Morgan's economic activity surprise indices (The desk's gauge of data against consensus; Chandan says the euro area reading is at three-and-a-half-year highs while the US sits close to neutral, and calls that gap the thing FX strategists have to be mindful of)
The FRI index (How Chandan tracks changes to the economics team's growth forecasts; it is where she saw half the post-conflict euro area downgrades come back out)
TTF natural gas (The European gas benchmark, back near its highs; Chandan uses it both as the reason the growth upgrade is astounding and as the input keeping her euro/dollar fair value low)
DXY (The dollar index, which Locke says has been closely correlated with pricing for the September Fed meeting)
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