• JPMorgan Chase & Co. maintains its bearish 2026 outlook on the US dollar, projecting a modest 3% decline through mid-2026.
  • The bank argues dollar weakness supports global equities—particularly emerging markets (EM) and commodities—rather than derailing them.
  • Despite FX translation headwinds in Europe, historical patterns show USD softness boosts EM equities and offsets earnings drags via stronger growth.

JPMorgan Chase & Co. is sticking to its guns. In recent reports, analysts at the global financial services giant reiterated a bearish stance on the US dollar, forecasting a gradual 3% depreciation through mid-2026. This view comes as the DXY index, which tracks the dollar against a basket of currencies, has already dropped 3-8% year-to-date, marking one of its weakest first halves in decades.

"What we're seeing isn't a crisis for stocks—it's a catalyst," said one strategist familiar with the matter, who spoke on condition of anonymity because they weren't authorized to comment publicly. The bank's analysis, led by FX teams including Meera Chandan and Arindam Sandilya, hinges on a simple historical correlation: when the dollar weakens, global equities, especially in emerging markets, tend to rise.

Efforts to calm investor nerves around currency volatility appear to be gaining traction. JPMorgan points to solid economic momentum beneath recent market gyrations in commodities and bonds. Fed futures currently price in roughly 50-55 basis points of rate cuts by year-end, reinforcing a supportive backdrop for risk assets. This anticipated monetary easing, coupled with fiscal loosening via potential spending or tax cuts, is a key driver behind the dollar's projected softness.

In Europe, a stronger euro does pose a translation challenge, as about 25% of regional corporate revenues are dollar-based. However, JPMorgan notes that periods of euro appreciation have often coincided with stronger economic growth, which historically offset that earnings drag. Cyclical sectors, in particular, have typically risen alongside the currency. "The growth story tends to win out," the strategist added, referencing internal models that show a negative -40% correlation on average between FX moves and earnings impacts for European firms.

Without this dynamic, the outlook for international equities would be murkier. The bank is advising clients to buy dips in metals and maintain bullish positions on EM and commodity equities, anticipating a second consecutive year of outperformance. EM equity funds saw inflows of $16.3 billion in July alone, according to recent data, underscoring the shift in capital flows.

Corporate treasurers seem less convinced, with about two-thirds bracing for Fed rate hikes sooner rather than later, contrasting sharply with market easing bets. This divergence adds a layer of uncertainty, though JPMorgan's baseline expects any Federal Reserve tightening to be delayed until at least the first half of 2027.

Looking ahead, the path for the dollar is likely to be uneven. While the bank's long-term capital market assumptions point to gradual weakening, risks remain from robust US labor data or growth surprises that could trigger earlier rate hikes. For now, the message from JPMorgan's towering headquarters is clear: a softer greenback is more friend than foe for stock investors worldwide.

Correction: An earlier version misstated the projected dollar decline; it is 3% through mid-2026, not annually.