Currency volatility:
Dollar strength, euro weakness?
Updated: June 16, 2026
Key takeaways
- J.P. Morgan Global Research has upgraded its outlook for the dollar due to factors including the hawkish Fed repricing and a resilient U.S. labor market.
- The forecast for the euro is bearish, especially as the growth divergence between the EU and the U.S. has widened.
- Growing political uncertainty in the U.K. could exert downward pressure on sterling, though weakness will likely be contained.
Introduction
The U.S. dollar has been under pressure in recent months, driven by factors including trade policy uncertainty, interest rate fluctuations and geopolitical tensions. The U.S. Dollar Index — which tracks the strength of the greenback against a basket of major currencies — plunged to a four-year low at the start of 2026 before paring its losses in the following weeks.
However, the macro landscape has since turned more dollar-positive. “Late 2025 and early 2026 saw the dollar on the back foot, with a second round of Fed easing to support the labor market and flows turning decisively away from the U.S.,” observed Meera Chandan, co-head of Global FX Strategy at J.P. Morgan. “In March, the Middle East conflict short-circuited that dollar-bearish environment through a volatility spike. And now, there is evidence that the dollar is gaining support from more organic U.S.-specific developments.”
What’s fueling the dollar’s comeback, and what’s the outlook for other major currencies?
The outlook for major currency pairs
Source: J.P. Morgan
GBP/USD is forecast to reach 1.34 in June 2026, 1.31 in September 2026, 1.28 in December 2026 and 1.30 in March 2027. EUR/USD is predicted to reach 1.17 in June, 1.15 in September, 1.14 in December and 1.13 in March. USD/JPY is expected to hit 158 in June, 160 in September, 164 in December and 164 in March.
The outlook for the US dollar
J.P. Morgan Global Research upgraded its outlook for the dollar in mid-May thanks to evolving macro conditions in the U.S. and a notable shift in Fed sentiment.
“The labor market is showing more signs of demand stabilization after months of softness that weighed heavily on the dollar, and inflation surprises are also starting to challenge expectations of limited pass-through to core,” Chandan said. “Meanwhile, U.S. equities are in the midst of a great run, reinvigorating the notion of dollar-positive U.S. exceptionalism via strength in the tech sector.”
The Fed’s hawkish pivot could also bolster the greenback. The Federal Open Market Committee (FOMC) has long been described as having an asymmetric reaction function —
that is, a willingness to look past inflationary concerns amid labor market deterioration. “That bias is essentially neutralizing, however, following the Fed’s hawkish and unexpected dissents against keeping an easing bias in its April meeting statement,” Chandan noted.
Looking ahead, J.P. Morgan Global Research expects the Fed to hike rates in the third quarter of 2027, with risks tilted toward an earlier move. This should raise the return on dollar assets relative to other currencies, reinforcing the constructive outlook for the greenback.
The U.S. dollar has largely mirrored moves in Brent prices since late 2022.
The outlook for the euro
While the macro landscape is skewing dollar-positive, it is also becoming more euro-negative by extension, prompting J.P. Morgan Global Research to pivot to a bearish EUR/USD forecast for the first time in a year.
“Two bearish euro forces have intensified in recent weeks,” Chandan said. “First, the relative growth divergence between the EU and the U.S. has widened. Second, the hawkish Fed repricing has moved rate differentials in favor of the dollar both in real and nominal terms.”
In addition, the EU’s terms of trade — the relative ratio of a country’s export prices to its import prices — have deteriorated sharply following the Iran conflict, while its relative equity returns have collapsed.
Consequently, J.P. Morgan Global Research sees EUR/USD hovering between 1.13 and 1.15 in the next three quarters, down from its previous target of 1.20. “Underlying assumptions for this forecast are that European sentiment stays subdued relative to the U.S.,” Chandan added.
Meera Chandan
Co-head of Global FX Strategy, J.P. Morgan
The outlook for the British pound
Political uncertainty has increased substantially in the U.K., with questions surrounding the future leadership of the Labour Party — and this could weigh on the pound’s fortunes. “Over the coming weeks, we look for politics to dominate, but the problem will be the tradability of this theme,” Chandan said.
While the outlook for the pound is bearish, weakness will likely be contained for several reasons. “Any political leadership contest will be a multi-month process, with results not likely to become clear until September. Importantly, scant details will be available on
fiscal plans in the run-up as well, since candidates will not want to foray into areas that could roil markets ahead of the contest,” Chandan said. Moreover, GBP investor positioning is already net short, suggesting that markets already expect sterling to depreciate.
Overall, J.P. Morgan Global Research looks for modest GBP weakness over the next few quarters, with EUR/GBP hovering around 0.88 to 0.89 and GBP/USD between 1.31 and 1.34.
The outlook for the Japanese yen
J.P. Morgan Global Research continues to hold a bearish view on the Japanese yen, which has largely underperformed its peers.
“While the yen has appreciated against most other G-10 currencies in recent weeks, its gains have been limited to 0.1% versus the dollar and 0.5% on a trade-weighted basis. Considering that a yen-buying intervention by the Ministry of Finance (MoF) on the order of JPY 8-9 trillion is believed to have been conducted over the same period, these gains can be described as relatively modest,” Chandan noted.
This could be due to the fact that JPY short positions were not particularly built up, and that the MoF’s intervention may have been anticipated in advance.
All things considered, the outlook for the yen remains bearish through 2026. As a result, J.P. Morgan Global Research is keeping its USD/JPY targets unchanged at 158 for the second quarter, 160 for the third quarter and 164 for the fourth quarter.
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