J.P. Morgan has changed its short-term forecast for the Japanese yen because of political uncertainty. They expect USD/JPY to be at 146 in the third quarter. By the year’s end, they predict it will fall to 142 and drop further to 139 by the second quarter of 2026. Among G10 currencies, the yen was the only one downgraded. J.P. Morgan kept its euro forecasts steady at 1.20 for EUR/USD in Q4 and at 1.22 for mid-2026. Influences may come from weaker U.S. data or shifts in Federal Reserve policy.

Strategists’ Recommendations

Strategists suggest taking a short position on the U.S. dollar compared to the euro, commodity currencies, and the yen as a safe strategy. They recommend being more invested in Scandinavian currencies against the euro due to favorable valuations, while highlighting concerns about sterling’s performance because of fiscal and growth challenges. They favor emerging-market currencies, especially those in the EMEA region. With political uncertainty in Japan and snap elections scheduled for October 2025, we expect the yen to remain weak in the upcoming weeks. The Bank of Japan confirmed this by keeping rates steady in its July 2025 meeting, widening the gap between its policies and those of other central banks. Traders may consider buying near-term USD/JPY call options aiming for the 146 level, as this outlook appears solid through the third quarter. Recent signs show a slowing U.S. economy, as July 2025’s jobs report revealed weaker hiring than expected, and inflation has dropped to 2.8%. This increases the chances of a Federal Reserve shift, making long euro positions more appealing. Thus, buying EUR/USD call options that expire in the fourth quarter, targeting the 1.20 level, seems wise.

US Dollar and Commodity Currencies

The general weakness of the U.S. dollar should support commodity currencies. Industrial metals and oil prices have stayed strong throughout 2025, making it wise to maintain short positions in the U.S. dollar against currencies like the Australian and Canadian dollars. Using futures or options can help manage risk while participating in the trend. Sterling continues to underperform due to ongoing domestic issues, including a reported economic contraction in the second quarter of 2025 and a growing budget deficit. These factors suggest further declines are likely. Traders might consider buying puts on GBP/USD or taking bearish positions in EUR/GBP. Relative to the euro, Scandinavian currencies appear undervalued, presenting chances for long positions in pairs like NOK/EUR. Emerging market currencies, especially in the EMEA region, are also gaining strength, boosted by favorable growth differences. Looking back at the Turkish lira’s volatility in 2023 and 2024, its current stability offers tactical opportunities for more adventurous investors. Create your live VT Markets account and start trading now.

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