The desk interprets J.P. Morgan's recent commentary on FX markets as a pivotal insight into the USD's trajectory, particularly following the U.S. Treasury's unexpected increase in long-end bond buybacks. This move suggests attempts to stabilize the yield curve, which could result in a stronger U.S. dollar as international investors reassess their positions. Per the full note, the consensus consensus targets for major currency pairs like EUR/USD, GBP/USD, and USD/JPY indicate a dynamic landscape influenced by these shifting monetary policy signals. As traders look ahead, maintaining a close watch on U.S. Treasury yields and subsequent FX market reactions will be essential for positioning decisions.
What the desk is arguing
The desk posits that the recent uptick in long-end bond buybacks by the U.S. Treasury could underpin a stronger USD moving forward. This speculative currency strength is driven by potential changes in international capital flows and market sentiment regarding U.S. economic strength. The discussions from J.P. Morgan's research highlight how these bond market actions could lead to a reassessment of risk among foreign investors.
The desk notes that shifts in long-end Treasury yields, if followed by subsequent policy guidance from the Federal Reserve, could enhance the dollar's appeal. Specifically, recent consensus targets for major currency pairs suggest a significant divergence exists among firms. For instance, the EUR/USD is currently at 1.1466, with December targets ranging from 1.1200 to 1.2000, aligning with the fundamental narrative outlined by J.P. Morgan.
Where it sits in our coverage
For the EUR/USD, our consensus target stands at 1.1634, with a range spanning 1.1200 to 1.2000. Notable firm targets include: - Morgan Stanley: Dec26 1.1600 - Goldman Sach: Dec26 1.1200 - Rabobank: Dec26 1.1400
The view articulated here generally aligns with broader sentiment in the market as J.P. Morgan's forecasts sit well within the prevailing range, reinforcing market expectations but also indicating a cautious approach given the possibility of policy uncertainty.
How other firms see it
Aligned firms include Morgan Stanley and Commerzbank, holding a bullish view on the EUR/USD, suggesting a consensus for a stronger dollar narrative. In contrast, Citi and Barclays present more bearish estimates compared to our desk, hinting at a potential for downward adjustments in their forecasts depending on future U.S. economic indicators.
The ongoing adjustments in the USD/JPY align closely with anticipated moves from the Bank of Japan, reflecting the interdependent nature of these currency dynamics amid shifting central bank policies.
01Long-end bond buybacks by U.S. Treasury may strengthen the USD.
02EUR/USD consensus target is 1.1634, suggesting significant market divergence.
03Traders should closely monitor U.S. Treasury yields for market positioning.
04Expectations of Fed policy could influence USD stability.
Market implications
Keep a vigilant eye on the 1.1500 level for EUR/USD as a critical pivot point, as shifts beyond this could signal further dollar strength. Additionally, with no high-impact events on the calendar, focus will remain on market reactions to Treasury yield adjustments.
Risks to this view
Key risks include unexpected macroeconomic data from the U.S. that could trigger a reversal in dollar strength, especially if inflation prints above expectations or employment data shows unanticipated weakness. Central bank communications from the Fed or the ECB could also dictate market shifts.
Hello, and welcome to this At Any Rate podcast. I'm your host, Arindam Sandilya from J.P. Morgan's FX Research team.
I'm joined today by my senior FX strategy colleagues across the globe, my partner in crime Meera Chandan, running the team out of London, as well as Patrick Locke and James Nellion. Now, if you guys pick up a copy of our FX Weekly this week, the first words you will read in the currency overview section are reports of a quiet summer for macro markets are greatly exaggerated. And I think most of us on this call feel that way.
The policy surprises have been coming at us thick and fast. One week, it is the historic joint intervention on the yen. This week, it was a turn of the Treasury to up the size of long and bond buybacks that abruptly flattened the long end of the US yield curve and sank the dollar.
Now, clearly, we are dealing with an activist Treasury that is not gunshy about making the most of the tools at his disposal. In his interview with the press yesterday, Secretary Besant also alluded to the idea that there are other unused tools in the Treasury toolkit still. So we may not be anywhere close to the end of this supply of policy surprises.
So given this, you know, unsurprisingly, the biggest point of discussion for us with clients this week was the dollar outlook in the wake of the Treasury's actions. The market seems to have latched on to two somewhat related strands of reasoning for the dollar weakness that we saw this week. The first is a more common easing of financial conditions line of argument that when the Treasury buys back long and bonds, reduces term premium at the back end of the curve, that eases cost of capital for long duration assets and a broad risk rallies and the dollar kind of sells off in line with the middle of the smile, something that we've seen countless times over the last several years.
The second argument, which is interesting, but also much harder to empirically justify, runs through this channel of policy unpredictability slash credibility creeping into the US policymaking system. And that argument is not too dissimilar to the one that prevailed over several months of 2025, when the sell America and dollar debasement trades were at their peak. And these are not the same things.
I think there is some conflation going on of not necessarily related factors, but maybe one analytically handy way to think about these two channels could be that if the FCI channel reduces the fair value for the dollar in our two factor overall global growth and US minus rest of the world growth differential framework, then maybe the second factor around policy unpredictability injects additional risk premium over and above fair value. And that makes the dollar trade at a discount to your usual cyclical correlates. How much risk premium is appropriate for this is inherently difficult to calibrate.
It's likely a function of a host of factors, including initial conditions on where valuations are and what positioning looks like. And then all of both of those things are currently sending very confusing signals for the dollar. Positions are cheap.
The positions are still somewhat long, though may not be as long as CFTC data suggests. So anyway, so this is a not a straightforward setup. And where I seem to struggle with these simple explanations is that they all crumble if US data flow were to unfold in the direction that our economists forecast and the Fed ends up acting conventionally in the direction that we are currently projecting, which is shallow hikes into the end of this year and beyond.
And markets are somewhat pricing that same Fed path in. And this was the initial thesis for why we had turned bullish dollars in mid-May. It was principally oriented around the Fed reaction function and the idea that, you know, higher rates would at least make the dollar a higher carry candidate across a broad spectrum of low yielding currencies.
So let me open this discussion now to the group on the podcast. What do you guys make of the dollar move, both the causes as well as the magnitude that we've seen? Are you surprised?
And where do you see things going from here? Do you think the sell off can extend in coming weeks? So this is sort of an open question to anybody who wants to pick up the baton.
Yeah, maybe I'll take it. Look, I have a lot of disparate points in my head. They're not necessarily kind of like well tied together.
And I think that's kind of consistent with the conversations that I've been having since this event. People are kind of like confused to a degree and not totally sure exactly what to make of this whole situation. I think the point that we've made is correct in that it is, I think, reasonably speaking, a dollar negative development.
But like, you should certainly question the magnitude and the durability of the sell off generally. And I take your broader point as well, that I think ultimately the dollar's outlook is much more contingent on data and the Fed more so than this kind of like discrete event specifically. So I guess my bias is to lean into the dollar negative, but it doesn't necessarily have to extend very much.
On those disparate points that I'd make, I'll just list off a few things for kind of like how I'm piecing the puzzle together here. First off is that at the end of the day, I think this is a reasonably small episode, if you would. It's like 14 billion effectively in the buybacks this quarter compared to the 32 trillion dollar Treasury market.
When you couple that with the Euro-yen intervention and our estimate that Treasury only sold maybe around a half a billion Euro-yen. Basically when they have dipped their toe in recently, it hasn't been in a shocking bazooka style size. So I think that's important for kind of like the tactical price response.
But having said that, stepping back, Besson admitted that there was a signaling component to this. And the way I line it up in my head is there is a very clear sequencing now between FX intervention, Treasury opening up its FEMA repo facility to Japan to backstop Treasuries in case of more intervention. There was the surprising change in forward guidance on Treasury issuance and supply at the refunding.
And now this. So certainly, you know, Treasury has been unusually very active in the market kind of over the last month or so. And I think when you take all those things together, do any of those things have a dollar positive bias?
No, it's either kind of like neutral to dollar negative, I think. So that kind of like suggests that this kind of more strategic pivot from the Treasury is, you know, deserves maybe a little bit of premium in the dollar in that respect. With respect to this one specifically, you know, you mentioned like the lower term premium and things like that.
I mean, it's interesting, of course, to hear that our rate strategies are actually pitching that this week's developments could warrant a higher term premium over time. And certainly I think as we kind of move away from this idea of the Treasury being regular and predictable, that necessarily should increase kind of like rates fall, I think, all else equal. And again, G.
Berry and company are saying that it could result in higher term premium over time against a backdrop where we're not sure about what the Fed outlook is going to be going to be like. And with a couple of data disappointments in the recent rear view, you know, that kind of like if the short end stays relatively contained, but the term premium continues to rise, we've demonstrated empirically that that is a dollar negative, right? So I think I'm kind of keeping an eye on how that evolves.
In terms of past analogs, you know, I think back to 2025 and kind of like the post-Liberation Day dollar selling, there was obviously a greater discussion around policy credibility premium in the dollar back then. I'm not totally sure that's a great analog at this point because, you know, one, it seems like Liberation Day, that event was much larger on a macro scale, but also like kind of X post, we were able to rationalize a three to five percent dollar discount that persisted in the second quarter last year, largely to kind of the FX hedging flow and the dollar hedging flow. And it obviously remains to be seen whether there's any such flow kind of on the back of that.
And then maybe the final thing I'll just say here is like you look around and try and just cross asset and see what's happening and that can kind of help gauge where you're at. The rally in gold and Bitcoin and real assets, you know, this week has certainly been outstanding. Outstanding in the literal sense that it stands out.
And that obviously harkens back to a little bit of a debasement trade. So from my perspective, I'm keeping an eye on kind of how real assets trade. So like those are like six leaves that I'm thinking about, again, like they don't obviously all kind of like link together, but I think for now they kind of skew a little bit dollar bearish.
But I I'm personally not inclined to chase too hard, given that we have, you know, key events coming up, both on the data and the Fed policy front. So that's kind of where my head's at. Thanks, Pat.
Can I just pick up on maybe a couple of strands that you mentioned? So, yeah, you're right that on the rate side, we are not calling for a durable reduction in term premium. But folks who are more convicted on dollar bearishness than us will argue that what this week has revealed is a clear empirical asymmetry of the dollar with respect to long in yields and yield curves.
When long in yields were rising, the dollar did not obviously benefit. When long in yields fell immediately after the buyback announcement surprise, the dollar did tank. So net net, you're more comfortable holding dollar shorts because there's some degree of comfort that you're not going to be torpedoed by what the back end yields to.
The second piece that I would just comment on that real quick, I mean, I take that point, but obviously this was kind of like an engineered lowering of the long end, right? I think the way I had been thinking about kind of curve flattening is if it was more of like a Fed and data policy led, more proactive response, maybe you get a Fed hike in September. If that was to basically twist, flatten the curve, unwind some of the twist deepening in the rates premium that we saw from July, that to me actually argues as a very dollar positive result, right?
So you get the benefit of the short end, but also some degree of relief in the long end, which I think is just generally good for US assets in a broad sense. So I'd just be, I would condition that, I guess, on the nature of how the long end is moving. Yeah, yeah, for sure.
The other thing I wanted to bring up was you referred to 25 and I think that is maybe the most top of mind analog for policy credibility type discussions, but purely from the perspective of playing around with a mix of issuance tenors, I know several people have referred to 2023 as a bit of an analog for how Secretary Yellen at the time surprised markets with lower than expected coupon sizes of the November refunding. And that led to the last two months of the year, a very sizable sell off in the dollar and a big plunge in yields. I think there are some obvious differences between that episode and this, but I think the one from a price perspective that looks quite material to me is that the initial conditions for the Yellen actions to have a big market impact was that there was a huge rally in the dollar and a huge sell off in long end bonds in the lead up to that policy surprise, which itself had been triggered by an aggressive front loading of coupon issuances at the August QRA that year.
So FCIs were tight and there was scope to lose in FCIs and for the dollar to fall alongside. You pull up any chart of FCI, whoever the provider, and you'll see that FCIs in the U.S. are sitting at their loosest in God knows how many years. And so I just don't see the room for the same kind of policy driven losing of FCI to drive a huge middle of the smile type dollar sell off.
And that's been sort of grating at the back of my head as to how much really to push on this argument. And then this policy credibility question I struggle with as well. And Amir and I have had a long chat about this this week.
Now, it just seems to me like there is a conflation of genuine easy money, easy fiscal mix that drove dollar debasement last year with something a little more nefarious this year, which has to do with this notion that the Fed will not do the right thing, the orthodox thing, even in the face of strong jobs growth and sticky inflation. I think there is a thought that thoughts that are being connected here that I just don't think we have enough empirical basis to to connect. And now next week's Jackson Hole is going to be a good marker for where Chair Wash's head is at.
I mean, in case he does actually decide to provide the market with some color on his thinking, he doesn't need to. The topic of the event is probably not conducive to that either. But I'm interested, Pat, in your view on that.
But I just struggle with the idea that this is not going to be an orthodox Fed just given how many dissents we've already had this early in the Fed chair's term and just how hawkish the July minutes this week turned out to be, albeit they didn't have the the knowledge of the soft data flow that followed. If I can just step in here, I think the comparisons to 2025 are really not fair. This is not a 2025 situation.
The key difference being, yes, the similarity is you do have term premium benches going up. The key difference being that the Fed's in a completely different regime at the moment in 2025. And this is the point we were making, is the most toxic combination for the dollar tends to be when term premium is going up in the U.S., but at the same time, the Fed has an easing bias and front end rates are falling.
And that's certainly not the case right now. In fact, you know, the Fed pricing for hikes in the next year is basically more or less unchanged at about 35, 37 basis points. If I look at the shape of the curve, there's been a bit of a delay there, pushback, because some of the data has disappointed.
But you haven't really seen, you know, sort of a deep pricing of the Fed. And I think that's the missing piece of the puzzle to me. You know, this is, you know, there are fiscal issues in the U.S. that need to be addressed 100 percent.
And, you know, we have been from time to time over the past 18 months been engaging in sort of this fiscal differentiation within FX. It was a very big thing in 2025, but it hasn't actually, if you look at our systematic models, been working more recently. And I think that's the key difference.
And while this action by itself, I mean, I think it's debatable whether by itself it should be a dollar negative, it's certainly put a spotlight on the FX, on the fiscal issue. And that's why I guess you're getting the dollar reaction that you are. But to me, for this to move substantially beyond what we've seen already, a necessary condition is that the Fed terminal rate needs to come off.
And basically, you know, whether that's a Fed credibility issue, whether that's the data issue, it could be a data issue, right, where you have had some disappointing data. And essentially, what ends up happening is that the dollar has to weaken as a result of that. So I think that is the missing piece of the concern and a puzzle.
And, you know, if next week is sitting here with core PCE in line with Mike Fiorili forecast, which is 0.32 percent, it's certainly firmer than consensus. You get a bit of a hawkish tone from Borsch, and then we're going into payrolls and we're just going to have to reassess on that basis. I don't think that this action actually gives us what we need or meets the required thresholds for this to be a sustainable move.
Now, it sounds like they're all arguing the same side of the story, whereas this is supposed to be a debate. And for the record, I am supposed, you know, I my view is actually that that is not going to be much follow through. I do sort of assume that there was some positioning washout that needed to happen by my calculations that positioning washout is kind of done.
And I think now it's down to the Fed. But, you know, just in the interest of taking sort of the contrarian view here and the opposite view, just just to inject more questions or debate, you know, if I were to be bearish the dollar, you know, I would say that there is perhaps some more positioning. US exceptionalism was fading in any case.
Sure, we have to wait for the data, but, you know, two out of the three payrolls numbers have disappointed. So the Fed likely won't hike. There is policy unpredictability coming back into the foray and that should warrant a dollar discount.
So sure, a dollar is cheap, but it should be. And, you know, the best intervention is unpredictable, you know, isn't is actually leading to more of or should warrant more of a larger term premium as has been discussed. And then perhaps Fed independence could become an issue again as well.
And that's something that a couple of participants have actually come back to us. So if anybody has accounted to those specific views, I think that would be quite, quite interesting. Can I just add, Mira, on your point around Fed terminal being key, you know, one point that we've been making is that those look, if you look at the totality of the data, there is some organic strength in the economy coming down the line and, you know, focus on the immediate payrolls and CPI data may not bear that out immediately.
But one of the things we looked at in the weekly this week is that if you look at pricing back to the 2000s Fed pricing, when you've got an ISM manufacturing trending in the manner that it is today, the lower bound on Fed pricing is zero. And that kind of makes intuitive sense. But it kind of backs up the point that it's a very high bar here to price easing.
But, you know, pricing the amount of easing that we are around, the amount of tightening that we are around 40 basis points, you know, that is one reason why pricing is quite sticky because the totality of the data is telling you that there's strength coming in the economy down the line. And whether you look at, you know, the Fed regional surveys for payrolls or some of the leads like NFIB, it is suggesting that payrolls growth will rebound. That might limit some of the steepening that we maybe see on the back of what the Treasury has done.
And it makes you has you thinking a bit more, again, about level versus changes in rates for the dollar as well. And when when all said and done and the headlines around what the Treasury has done settle down, that it might be, you know, the level of rates that end up supporting the dollar. But that's just my view.
Yeah, I think I think we can go on on this for a little bit more, but just in the interest of time, if I can shift the conversation a little bit away from the dollar and the move that we've seen this week to maybe other currencies that have been affected as a result of of the long and yield moves this week, James, one of your currencies, the Swiss franc in much more than normal spotlight these days, because it looks like everyone and their mother is funded out of Swiss franc for their carry trades. Given the big move that we've seen in Swiss this week, the stock of debasement resurfacing Has your confidence in Swiss bearishness taken a knock at all? And maybe just broaden that out to more generally, how do you read the spillovers into the low yielder FX block?
I guess Sweden in your region has been used similarly as well. Is there an effect? Yeah, I think you have to acknowledge like some some increase in risks given what's happened this week.
If you look at the rising gold prices, as Patrick mentioned, you know, the market is going to be thinking a little bit more about alternative reserve currency demand. You look at clearly what was a bit of a squeeze in positioning for Swiss on the day and on the form of dollar weakness that's coming through. You're thinking about relative fiscal risk, which which has tended to favour Swiss over time.
But ultimately, the backdrop we think is still quite conducive to carry. Yes, you have a rise in gold prices, but you also have a rise in energy prices, oil and gas. And the way we're thinking about Swiss weakness here is more against high beta cyclical currencies, some of which are energy exporters, where you do have a good offset there in terms of the other things that are going on in markets at the moment.
So you look at the PMI data today, very strong across the board, across the M, you know, that's been kind of the cornerstone of our weakest Swiss view, that it's one of the best ways to express a bullish nominal growth view. And we're seeing that come through in the PMI's and growth revisions. So that's quite encouraging.
I think that that does provide enough of an offset to the other risks in terms of gold reserve currency demand and what's going on with the dollar and fiscal risk. And then you have to think about the options for funding that the market has. So any further yen intervention risks or more hawkish POJ outlook.
And I think the market will still be searching for funding currencies elsewhere, given the carry backdrop. And that can still see positioning kind of migrate over to Swiss, you know, even though positioning does screen at quite stretched levels and it has done for some months now. And it's hard to it's hard to argue against that because since since the Iran conflict came into play and we shifted into it to a carry backdrop, fair value for Euro Swiss is down at 90 to 50.
So it is a little bit on the rich side. But if you do look at some of these higher beta Swiss crosses against growth, it's it's a they're much more sensible valuations. And if you do think there's growth upside from here like we do, then they still make sense in our view.
The stocky, you know, this this is this is something I have a bit of enthusiasm about in terms of, you know, we've had a raft of investor, you know, confidence in the domestic data in Sweden and, you know, whether that should mean people should be embracing a bullish stock view. We had similar questions back in back in June and July, and we just think, you know, that that better growth backdrop domestically, particularly for stocky I'm talking about now as a funding currency, was quite well priced in Q1. You know, stocky was the darling of G10 in Q1 and Eurostocky traded all the way down to 1050.
And that 2 percent growth backdrop in Sweden became well priced. And then we shifted into a carry backdrop and you have to ask yourself how that carry backdrop is evolving. Well, we have a Riksbank now that's clearly pushing back on market pricing again this week talking about subdued pricing plans.
You know, are they really going to be starting a hiking cycle with core CPI well, well below 1 percent? And, you know, you have the energy price risk as well, given Sweden is an energy importer. So I just think that the bar is much higher for domestic growth in Sweden to matter for a funding currency like the Krona if yields are so sticky and energy prices are rising.
So I'd say our conviction in the bearish stocky bias definitely went up this week. I don't know if I can just jump in and make a couple of points. The one thing I'll say is that, you know, the dollar view aside, where we've had a decent amount of pushback, I would say that the one thing that really stands out to me is that the pro cyclical signals that we tend to follow have become quite have become even more in the green.
So really reinforcing this idea of the carry team and having some high beta exposure. I think the combination of high energy prices, you know, we shouldn't really lose sight of that. I mean, that's one of the reasons also to stay on the sidelines for the dollar.
But you know, that does mean that within the DM space like Aussie and Nokia would be probably still the topics among the topics for me at least from a top down perspective. And it looks like our EM team, which has been talking about COP, is also still looking pretty solid on some of our systematic models. But that certainly to me, like having some of that kind of exposure makes a lot of sense.
Second thing on my mind, I would say is that, you know, Secretary President talked about having asymmetric information and he specifically singled out dollar yen in that regard. And, you know, I do wonder, you do have a series of, you know, notable dates coming up in terms of Japan with obviously the Jackson Hole, the SEP BOJ meeting. And then also, you know, we're always looking for something on GPIF, nothing delivered yet.
But I think, you know, that that might be given his sort of doubling down on this yen issue could be an interesting space to watch as well in case we do get sort of a big change from the Japan side of things. Yeah, no, 100 percent. It's just interesting to me that in the flavor of client conversations, when they stress test you on views on the carry theme, prior to this week's Treasury actions, the stress testing was mostly along the asset side of the carry trade, i.e. will equities and will these high yielding EMs be able to withstand this inexorable rise in the long end of the Treasury curve?
And right after the Treasury's buyback announcement, the stress testing went to the other side, the financing side. And I think some of these concerns center on kinds of like Swiss and yen and their vulnerability with this kind of unconventional actions. Definitely watch this space.
And I know we've gone on for a little bit, but we do want to leave our listeners with some concrete sort of ideas and views on how we are thinking about specific currencies. So open to anybody on the call. If you have specific biases that you want to air, please, please go ahead.
Well, I would I would just say with with Noki, you know, it's a currency we've been bullish on for some time and Euro-Noki fair value keeps falling here. So it's down to 1080 now. Makes sense with the rise in energy prices.
That's actually offsetting the rate spread, which is moving the other way. But you do have the kind of potential kicker of a Norges Bank hike in September, which the CPI print in a few weeks time will be will be quite important for. But with, you know, robust domestic growth valuations where they are, energy prices doing what they're doing.
We still we still do like Nokia here. Patrick, a word on CAD? Yeah, I just say, you know, I'm I'm less bearish on CAD than I was from the second half of last year and through the first half of this year.
The data has been better and it looks like the trade negotiations are going to result in potentially materially lower tariffs on Canada. Now, we've we've recommended CAD as, you know, a funder for like long carry trades. I still think that works.
But the case for trading CAD on the short side for purely alpha purposes, I think that that case is less strong than it has been in the last nine months or so. Even when the dollar is on the back foot and the market has pride for trading the CAD as a bit of a dollar proxy. So I think if we really go into a dollar swoon here, then fine, you can sell CAD as a dollar proxy here.
But obviously, we're a little bit equivocal on that. And what I would note, too, is I think this is a bit of an unusual backdrop where the dollar is pretty long still and CAD is very short. Typically, when they co-move, the positioning, I think, tends to be a bit similar there.
So you've got something of a positioning resistance on the CAD side. I think maybe that will short circuit that relationship in a very kind of tactical sense. But yeah, if you tell me if you tell me dollar twice going down 5 percent, then sure, I can go up.
CAD Norway can go down those expressions that we've that we've been constructive on over the past year. Yeah. OK.
All right. So let's leave it there for this podcast. There you have it, guys.
We like carry. We like the likes of Australia, Norway. We like funding them out of currencies like Swiss and the Swedish krona.
We are quite muddled on the dollar and are, as Patrick said, equivocal on the view right here. I don't know if we're muddled on the dollar, but we're thoughtfully neutral. We are watchfully thinking about the dollar, as Chair Walsh said.
Correct. Excellent. Let's leave it there for this week, guys.
This communication is provided for information purposes only. Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures. 2026 JPMorgan Chase & Company, all rights reserved. This episode was recorded on August 21st, 2026.