Investing.com – Currency markets have been volatile over the past few weeks, prompting JPMorgan to revise its forecasts for the dollar.

JPMorgan analysts said in their August 14 note that July and August will go down in history as some of the most memorable periods of macroeconomic and political volatility.

“In six weeks, investors witnessed a change of candidate for US president, an assassination attempt and the JPY TWI index rising by 10% [trade-weighted index] “The rally, the turn toward massive rate cuts by the Federal Reserve in September and the biggest intraday gain since 1990 were just some of the highlights,” the bank said.

The FX market reaction was clear, although the dust has not yet settled, the bank added, but the broad outlines point to tiny covering in low yields, underperformance in high yield/procyclicals and a volatile but net weaker US dollar.

The biggest casualty of the surge in volatility has been FX carry, which will struggle to regain the dominant position it enjoyed over the past 12-18 months.

Year-to-date carry trade gains have already been wiped out, and the bank’s various metrics on its broader carry trade positioning suggest that 65%-75% of these positions have already been closed.

The dollar’s reaction to all these events is somewhere between expectations and slight disappointment, the bank added, with a 100-basis-point gain in the short-term value of the US currency simply too massive for the dollar to ignore.

JPMorgan has lowered its USD forecasts, particularly for the pair. It now sees its USD/JPY forecast at 146 for 2024/Q4 and 144 for 2025/Q2, from 147.

“We continue to see reasons to be optimistic about the overall USD outlook: 1) the US labor market is weakening, but other data since then has been good; 2) cyclical RoW data is not strong enough to depress USD; 3) USD historically tends to consolidate after such large swings in interest rates; 4) upside risks to USD from the US election remain; 5) August seasonality tends to support USD,” JPMorgan added.