The foreign exchange market has experienced significant volatility in the past few weeks, which has led JPMorgan to adjust its US dollar forecast.

Morgan Stanley analysts stated in a report on August 14th, "July and August will be remembered as significant periods of macro and political volatility in recent history. Within six weeks, investors witnessed events such as the replacement of US presidential candidates, attempted assassination attempts, a rise of over 10% in the Japanese yen's TWI (trade weighted index), an expected significant interest rate cut in September, and the largest single day increase in the VIX index since 1990.

The bank stated that although the reaction in the foreign exchange market has been significant, the dust has not yet completely settled, and the broad trend points to low yield short positions closing, poor high-yield/pro cyclical performance, and a volatile but net weak US dollar.

During periods of significant volatility, the main foreign exchange loser is foreign exchange arbitrage trading, which will make it difficult to regain the dominant position enjoyed over the past 12-18 months.

As of now, the arbitrage returns from the beginning of the year have been erased, and various broad arbitrage trading positioning indicators of banks show that 65% -75% of these positions have been closed.

The bank added that the US dollar's response to all of this was between expected and slightly disappointing, and the 100 basis point increase in US short-term interest rates was too significant for the US dollar to ignore.

JPMorgan Chase has lowered its forecast for the US dollar, particularly for the USD/JPY. It is now expected that the US dollar/Japanese yen will be 146 in the fourth quarter of 2024, 144 in the second quarter of 2025, and 147 previously.

JPMorgan Chase added, "We still have a positive outlook for the overall outlook of the US dollar: 1) the US labor market is weakening, but other data is still good; 2) global cyclical data is not enough to push the US dollar down; 3) the US dollar often experiences consolidation in history after experiencing such significant interest rate fluctuations; 4) the risk of the US election bringing positive news to the US dollar still exists; 5) seasonal factors in August usually have a supportive effect on the US dollar.