JP Morgan Research discusses the USD outlook in light of revising its USD Index (DXY) forecasts.

"The bottom-line here is that differentiation in FX is on the rise, and is tradable. Like 2022, the Iran conflict energy shock proved extremely bullish for USD correlations. But that has started to ebb now, for aforementioned reasons. Indeed, we’ve noticed an uptick in our ‘growth’ factor performance, just as low-grade US exceptionalism is being discussed and as regional differentiation becomes more obvious. This has anchored FX returns and some pockets like EUR/ USD and can continue to do so, particularly with US tech supremacy back on investors’ radars and driving USD strength via US equity outperformance," JPM notes.

"Our DXY forecast is upgraded by a large +3.2% on average across the horizon, mainly driven by the EUR/USD downgrade, and similarly now shows an upward-sloping trajectory," JPM adds.