JP Morgan maintains a pessimistic outlook on the U.S. dollar, citing decreasing U.S. growth, strong global support policies, and reduced interest in U.S. assets. The bank lists several ongoing factors for its negative view, such as the slowing U.S. economy, international fiscal and monetary actions, and low energy prices boosting demand.

JP Morgan anticipates a possible long-term decline for the dollar, potentially leading to a “dollar discount.” Recent indicators, like jobless claims and auto sales, suggest the dollar could weaken further. They believe U.S. growth might slow more than in other developed and emerging economies this year, despite mixed payroll data.

Currency Forecasts For 2025

Looking to 2025, JP Morgan predicts a slowdown in the U.S. but expects gains for currencies like the Australian and New Zealand dollars, the Norwegian krone, euro, and yen. Stronger performances are expected for EMEA currencies in emerging markets. They note a notable change in market expectations with the Federal Reserve’s terminal rate decreasing and the U.S. bond term premium rising, which they describe as unfavourable for the USD.

In essence, the analysis signals a bearish trajectory for the U.S. dollar based on a cocktail of economic signals and market positioning. The projection leans on weaker domestic output in the United States paired with more proactive measures abroad. According to the assessment, factors such as fading demand for American assets and falling energy prices—typically a tailwind for broader consumption—create a toxic mix for the dollar’s relative strength in the months ahead.

While recent employment and spending figures have not yet painted a unified picture, the analyst team still identifies broad signs of deceleration. Metrics like initial unemployment claims and subdued auto purchases suggest domestic appetite may be cooling. When viewed alongside expected shifts in policy stances elsewhere, and rising appetite for non-dollar assets, the pressure builds. It’s not just the data pointing one way; perception across markets has also pivoted—rate expectations are coming down, and longer-dated yields are drifting up, which can discourage capital flows into the U.S.

Changing Interest Rate Dynamics

For those of us focused on rate differentials and their consequences, the narrowing gap between projected central bank stances is clear. Cuts in U.S. rate forecasts, even before policy action materialises, shift interest away from dollar-long exposure. At the same time, various central banks—particularly in commodity-exposed economies—are showing comparatively firmer footing, creating an environment where carry trades refocus elsewhere.

Moreover, the reference to a “dollar discount” hints at an idea that the valuation premium the dollar has carried for years may now reverse. This overlay of sentiment change can add momentum to positioning flips, especially among leveraged players. As the forward-looking lens extends into 2025, currencies tethered more to global demand—such as those of smaller export-focused nations—begin to look more attractive in comparative terms.

Given current cross-asset signals, attention should now shift to fluctuations in global yield curves and how they reflect shifts in perceived real rates and inflation premiums. The steadier backdrop outside of the U.S., particularly with more persistent fiscal support in Europe and Asia, may anchor the case for rotating currency baskets away from defensive USD holdings toward more procyclical alternatives.

As premium erodes, strategies that maintained long-dollar bias purely on policy divergence assumptions require reevaluation. With the Fed’s peak rate having likely been made, the market’s push toward relative valuation becomes more pronounced. From this angle, bid dynamics start favouring pairs that benefit from ordinary rate spreads and stronger underlying data.

Monitoring how this theme plays out across spot volumes and forward contracts should be prioritised. The shift in rate differentials becomes even more influential when coupled with accelerated capital flows into sovereign debt markets that offer higher yields minus inflation drags. This opens opportunity for measured tactical positions on pairs likely to capture short-term dislocations as alignment slowly builds toward the secular trend.

With relative underperformance now expected to broaden out geographically, and yield-seeking behaviour increasingly measured against historical volatility regimes, our approach must balance protection with participation. Whether through FX forwards, options or leveraged structures, positioning should reflect the rising possibility that this discounted bias sustains.

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