FX FOMC post-mortem: Staying long-USD despite renewed inflation risk premium

Research evidence excerpt

FX FOMC post-mortem: Staying long-USD despite renewed inflation risk premium

Patrick R Locke AC (1-212) 834-4254 Arindam Sandilya (65) 6882-7759 Global Markets Strategy J P M O R G A N

patrick.r.locke@jpmchase.com arindam.x.sandilya@jpmorgan.com FX FOMC post-mortem

J.P. Morgan Securities LLC 30 July 2026

James Nelligan (44-20) 3493-6829 Meera Chandan (44-20) 7134-2924

james.nelligan@jpmorgan.com meera.chandan@jpmorgan.com

Inflation risk premium rears its head and drags USD lower -

but the long-dollar trade still has other supports

Wednesday was a material setback for USD, but it’s not the end of the long-dollar

trade just yet. We saw upside risks to the dollar into the FOMC this week, reflecting

the serial rise of hawkish Fedspeak in recent weeks and the subsequent potential for

material dissents. The 2pm release delivered three dissents with hawkish prepared

remarks (here, here), ostensibly meeting our dollar-bullish bar. Yet the dollar

nevertheless sold off - in part reflecting very last-minute whispers about a hike actually

being delivered, and accompanying last-minute demand for USD topside protection

(Figure 2USDtopsidedemandhasbenpositivethelastfewweksintotheFOMC,adingsometacticalrisktothedolarfromFedunderdelivery, Figure 3Thelastwek’ssharprepricingofJulyFOMCexpectationsalsoadedtacticalriskandpositioningtothelong-dolartrade).

Figure 2: USD topside demand has been positive the last few weeks Figure 3: The last week’s sharp repricing of July FOMC expectations

into the FOMC, adding some tactical risk to the dollar from Fed also added tactical risk and positioning to the long-dollar trade

underdelivery LHS: Priced hikes for July; RHS: DXY. Through 28 July.

USD net options flow (calls less puts, notionals) (5Y z-score)

Source: J.P. Morgan, DTCC Source: J.P. Morgan