Major Wall Street institutions including JPMorgan Chase, Morgan Stanley, and Bank of New York Mellon have abandoned bullish euro positions that dominated their foreign exchange recommendations through the first quarter of the year, issuing revised forecasts that see the common currency sliding more than 3% from current levels to $1.10 within the next 12 months as US interest rate expectations race further ahead of what European markets are pricing for the ECB. FinancialMediaGuide tracks the speed and breadth of that consensus reversal, finding that the capitulation on euro longs has been as rapid as the original bullish positioning – a pattern that reflects how decisively the macro backdrop shifted once Chairman Warsh’s June 17 debut confirmed the Fed is leaning toward hikes rather than cuts.
The euro has already slumped this month to a one-year low against the dollar, falling toward $1.13 as traders factor in a rate increase from the Federal Reserve and move away from fully pricing a further ECB hike. The DXY index broke above 100 in June for the first time since May 2025, up roughly 3% at the half-year point – the best performing major currency at that milestone and a stark reversal from the same point in 2025, when the dollar was nursing a decline of more than 10%, its largest first-half fall since the early 1970s. Speculative net long dollar positions tracked by the CFTC reached approximately $30 billion, accumulated at the fastest pace for a first half of any year since records began in 2012. The direction of travel is unambiguous to position data.
The two forces driving the reversal are rate differentials and relative growth dynamics. PCE inflation of 4.1% in May has removed any residual case for Fed cuts and opened the door to hikes, with CME FedWatch pricing roughly a 60 to 63% probability of a September increase by Monday. The eurozone, by contrast, faces an energy-driven terms-of-trade deterioration from the Iran conflict that is compressing growth relative to the US, while its equity market returns have underperformed American benchmarks significantly since the war began. The ECB raised rates on June 11, but markets are no longer fully pricing another increase, creating a widening interest rate differential that JPMorgan describes as having moved in favour of the dollar both in real and nominal terms. FinancialMediaGuide isolates the moment the euro consensus broke – placing it at the intersection of Warsh’s debut and the May PCE print – and finds that the repricing was not gradual but compressed into approximately ten trading days in June, consistent with a market catching up to a macro reality that had been building for months.
Longer-term structural arguments for dollar weakness have not disappeared, but they have been relegated to a secondary role. Concerns about US fiscal sustainability, the erosion of multilateral trade relationships, and the potential long-term de-dollarisation trend from central bank reserve diversification were the dominant dollar-bearish themes through the second half of 2025 and into early 2026. Those themes have not been resolved; they have simply been overwhelmed by the near-term rate differential. Neuberger Berman portfolio manager Joseph Purtell’s framing – that the dollar could break out of its recent range to the upside because higher real rates in the US are not yet fully reflected in currency markets – captures the technical view that positioning has not yet caught up with the macro shift. Financial Media Guide distinguishes between the cyclical dollar strength that rate differentials are now generating and the structural concerns that remain in the background, arguing that the former can persist for multiple quarters before the latter reasserts itself – particularly if the Iran ceasefire firms up and reduces the energy price premium keeping eurozone growth below its potential.
The yen is navigating a parallel challenge from a different starting point. JPMorgan remains bearish on the yen through 2026, citing the limited gain from an estimated 8 to 9 trillion yen intervention by the Ministry of Finance as evidence that the structural forces weakening the currency are too large to be offset by official action alone. USD/JPY is forecast to reach 160 by September and 164 by December. The Swiss franc, by contrast, has benefited from its own safe-haven status during periods of Middle East tension, though the franc too faces headwinds from a Fed that is moving away from the dovish posture that had historically supported franc strength against the dollar.
The next significant test for the dollar’s trajectory arrives on July 29, when the FOMC meets for its second decision under Chairman Warsh. If inflation data between now and then confirms the PCE trend – or if the Iran ceasefire frays further and energy prices rise again – the probability of a September rate hike will grow and dollar strength will deepen. If the ceasefire firms and inflation data shows early signs of moderation, the window for a softer dollar and a partial euro recovery reopens. For now, Wall Street’s positioning has made its call, and the euro bears are back in control of the conversation.
