Summary:

  • JPMorgan says renewed FX hedging by foreign investors could add fresh pressure on the US dollar

  • Stronger non-US currencies are increasing incentives to hedge US equity exposure

  • Fed rate hikes are seen as off the table, reducing yield support for the dollar

  • AUD and NZD forecasts upgraded; upside risks flagged for EUR

  • Bank remains bearish on JPY, sees USD/JPY at 164 by Q4

Bloomberg carried the piece, in brief:

JPMorgan strategists say a fresh wave of foreign-exchange hedging could add another layer of pressure to the US dollar, as overseas investors seek protection against further currency weakness on their US asset holdings.

According to the bank, global investors, many of whom hold sizeable allocations to US equities, are increasingly exposed to currencies that have strengthened sharply against the greenback. As those currencies push toward multi-year highs, the incentive to hedge dollar exposure rises. That process typically involves selling dollars forward, creating additional headwinds for the currency.

The strategists argue that the reactivation of FX hedging flows is a key reason to remain bearish on the dollar. They note that demand for downside dollar protection has been building since the Trump administration unveiled aggressive trade measures in April, a development that contributed to one of the dollar’s weakest annual performances in nearly a decade during 2025. While the Bloomberg Dollar Spot Index later stabilised and traded in a relatively narrow range in the second half of the year, renewed currency strength elsewhere is now reviving hedging dynamics.

Beyond hedging flows, JPMorgan cites a broader macro backdrop that is no longer supportive for the dollar. Federal Reserve rate hikes are seen as firmly off the table for now, narrowing yield support, while portfolio flows continue to rotate away from US equities. The bank observes that the recent dollar decline has accelerated more quickly than expected, with several downside targets reached ahead of schedule.

In terms of currency preferences, the strategists see further gains for the Australian and New Zealand dollars.

  • They have raised their Australian dollar forecast to $0.73 in the second quarter of 2026, from $0.68 previously, pointing to the prospect of additional Reserve Bank of Australia tightening.
  • The New Zealand dollar forecast was also upgraded to $0.63 from $0.59.
  • Upside risks to the euro are acknowledged, with a $1.20 projection maintained.
  • By contrast, JPMorgan remains bearish on the Japanese yen, citing an unfavourable domestic policy mix and an unsupportive global monetary backdrop. The bank expects the yen to weaken toward 164 per dollar by the fourth quarter, despite ongoing speculation about possible intervention.
This article was written by Eamonn Sheridan at investinglive.com.

from Investinglive RSS Breaking News Feed https://ift.tt/Q6pz2kI
via IFTTT