JPMorgn adjusts its dollar forecasts, notably USD/JPY by Investing.com

Investing.com – Currency markets have seen a lot of volatility in recent weeks, prompting JPMorgan to adjust its forecast for the dollar.

The months of July and August will go down as one of the most memorable episodes of macro and political volatility in recent history, analysts at JPMorgan said in an Aug. 14 note.

“Over the course of six weeks, investors have seen the replacement of a US presidential candidate, an assassination attempt, a +10% rise in the JPY TWI (trade-weighted index), a pivot to jumbo discounts of the Fed in September and the largest. increased during the day since 1990, among others,” the bank said.

The currency response was pronounced, although the dust has not yet fully settled, the bank added, but broad contours point to low-yield short-covering, high-yield/procyclical underperformance and a volatile but markedly weaker US. dollar.

The main currency casualty in the increase in volatility has been the currency port, which will be hard pressed to recover the dominant status it has enjoyed over the past 12-18 months.

Since then, early-year carry yields have been wiped out, and the bank’s various proxies for broader carry trade positioning indicate that 65%-75% of those positions have now been written off.

The dollar’s response to all of this is somewhere between as expected and slightly disappointing, the bank added, with the 100 basis point rise in the US short simply too big for the greenback to ignore.

JPMorgan has cut its USD forecasts, particularly across the pair. He now sees his USD/JPY forecast on the horizon by Q4/2024 at 146 and Q2/2025 at 144, up from 147.

“We still see reasons to be bullish on the overall USD outlook: 1) the US labor market is weakening, but other data since then has been ok; 2) Cyclical data Rd not strong enough to drive USD down; 3) the USD historically tends to strengthen after such large rate swings; 4) Upside risks to the USD from the US election still persist; and 5) August seasonality tends to support the USD,” JPMorgan added.