JPMorgan Reverses Year-Long Bearish Stance on Dollar
JPMorgan has reversed its year-long bearish view on the US dollar, establishing a tactical bullish position just three weeks after shifting to neutral on March 2. The move is a direct response to soaring oil prices following the closure of the Strait of Hormuz, which has revived stagflation concerns among investors. Strategist Meera Chandan described the shift not as a bet on geopolitical outcomes, but as "cautious insurance," positioning the dollar as the most effective hedge when stocks and bonds fall in unison. The bank has initiated a new trade buying the dollar against an equally weighted basket of the euro, Swedish krona, British pound, and New Zealand dollar.
Hormuz Scenarios Point to Potential 3.4% Dollar Index Gain
JPMorgan's analysis outlines four potential outcomes tied to the Hormuz disruption. Its medium-probability "Hormuz Interruption" scenario, which assumes the strait remains closed through the summer, forecasts Brent crude rising to between $100 and $120 per barrel and the Dollar Index (DXY) strengthening 3.4% to 102.6. This defensive posture reflects a deteriorating global market, with Brent crude already trading above $100 and the S&P 500 down 5.3% from its recent high. With both stocks and bonds under pressure, JPMorgan's quantitative model now ranks the dollar as its top-scoring currency.
Euro and Pound Face Deeper Losses as Yen Intervention Threshold Rises
The bank's strategists see specific G10 currencies as particularly vulnerable. For the euro, collapsing trade terms and below-average natural gas inventories have pushed its fair value down to a 1.10-1.13 range against the dollar. The British pound faces a dual threat, prompting JPMorgan to slash its GBP/USD forecast to 1.34 from 1.41. The bank notes the UK is suffering a greater economic shock than its peers, and rising rates in a stagflationary environment are expected to deter, rather than attract, capital. Meanwhile, JPMorgan remains staunchly bearish on the Japanese yen, forecasting USD/JPY to reach 164 by year-end. The report argues that because the yen's weakness stems from broad-based dollar strength, the justification for intervention by Japan's Ministry of Finance has diminished, effectively raising the threshold for action.
