Newsletter · · Ashutosh Agarwal

JPMorgan Cuts Its Euro Forecast as the Bank of England Turns Dovish - G10 FX: EUR, GBP, CHF & the Yen Carry - Week of June 1, 2026

G10 FX newsletter for the week of June 1, 2026. Across the FX tape the sell-side capitulated on the euro, the Bank of England edged dovish, and the cheapest vol in three years sits right under the yen, while CHF stayed conspicuously silent.

G10 FX: EUR, GBP, CHF & the Yen Carry

Week of June 1, 2026: JPMorgan Cuts Its Euro Forecast as the Bank of England Turns Dovish

Three things rhymed across the FX-relevant pods this past week: the sell-side capitulating on the euro, a quiet dovish pivot at the Bank of England, and a tail-risk drumbeat that the cheapest vol in three years sits right under the yen. CHF was conspicuously silent. Treat that silence as data, not omission.

TL;DR

  • JPM cut its H2 2026 €/$ forecast from ~1.20 to 1.13–1.15 on stagflationary EU PMIs and a real-yield decoupling.
  • Governor Bailey is publicly accepting above-target UK inflation as the labour market cracks, the biggest BoE tonal shift in months.
  • 1M ¥/$ vol sits below 7% while Michael Gayed warns of an "Aug-2024-redux" carry unwind; cross-yen looks under-priced.

What's new

1. JPM bails on the euro. Ineska Kristovova let it slip on JPMorgan's At Any Rate, EM Fixed Income (May 28): "Before they were looking at 120 ranges and now it's 113, 115 in the second half of 2026." That is a 5–7 big-figure haircut from one of the largest dealer desks. Meera Chandan reinforced it the next day on At Any Rate, Global FX (May 29): short-term fair value sits at €/$ 1.08–1.14, and her team has cut eurozone growth for "the 7th consecutive time in three months."

2. Bailey edges dovish. Per Jeff Snider on Eurodollar University (May 31), Bailey signalled via Bloomberg that policymakers "may have to accept inflation staying above their target… because the economy and labour market are indeed weakening." Snider's words: "That's a huge shift from a leading hawkish institution." The front of the gilt curve has barely moved on it.

3. France cracked, and Europe noticed. Pat Locke on JPM's Global FX (May 29): "The French PMIs last week were just terrible. And that was confirmed today in the first quarter GDP print for France, which contracted not unexpectedly." Snider added French household spending −0.5% in April and Germany cutting 2026 growth expectations. The Bund-Treasury real-yield gap has narrowed ~50bp without €/$ following, that's the wedge a JPM-style downgrade is trading.

4. Gayed flags a reverse carry crash. On ITM Trading Podcast, "Japan's Panic / Reverse Carry Trade Crash" (May 29), Michael Gayed argued every MoF/BoJ intervention has been a slow-bleed failure: "No amount of money that Japan is throwing at this to save the yen is working… they probably need to bring out a bigger bazooka." His analog is Aug 3–5, 2024. "I think it's going to happen again, probably longer and deeper."

5. Carry's still working, just thinner. Lad Jankovic on the same JPM Global FX (May 29) flagged the global FX vol index below 6.50, post-COVID lows, as still supportive of carry, with NZD upgraded after the RBNZ surprised hawkish (Locke's team pulled forward 100bp of hikes to start July). Best idea on tape: "Cross-Yen is kind of interesting in places like Aussie-Yen, and optionalising those expressions could be interesting."

The debate

Bull-€ steel-man. Nomura's Josie Anderson on The Week Ahead is calling an ECB hike in June, full stop. German CPI re-accelerating to 3.0%, ECB speakers "continuing to advocate" for it. If she's right, every €/$ short on the JPM desk gets squeezed and the 1.18–1.20 zone re-opens.

"We're expecting a June hike at the next meeting and speak generally has continued to advocate for that while also highlighting data dependence." (Josie Anderson, Nomura)

Bear-€ steel-man. Locke, Chandan, and Snider are converging: growth deteriorating, real-yield gap narrowing, French politics fragile, and even if energy gives ECB a hawkish print, the underlying impulse is dovish. Chandan would fade any Iran-deal €/$ pop (~+2%).

Carry vs anti-carry. Jankovic and Kristovova: low-vol regime intact, just less headroom. Gayed: structural funder ¥ is one global wobble away from snapping. Both can be right on different horizons. The cleanest expression of that asymmetry is what Jankovic actually says aloud: run the carry, but optionalise it on cross-yen because the vol is too cheap not to.

Trades in play

Only where the tape pointed at one:

  • Fade €/$ pops (Chandan, JPM, May 29), particularly any Iran-deal rally.
  • Optionalise AUD/JPY carry via cheap 1M vol (Jankovic, May 29), run the carry with paid-for downside.
  • Fade elevated EUR/GBP skew if an Iran deal removes the UK political overlay (Jankovic, same episode).
  • NZD long vs low-yielding G10 on the brought-forward RBNZ cycle (Locke, same episode).

Read-throughs

  • Bund-Treasury spread. ~50bp of real-yield narrowing without spot €/$ following is the wedge JPM is now monetising.
  • Cross-¥ / EUR-JPY. The optionalised carry lives here; sub-7% 1M ¥/$ vol is the cheapest tail hedge available.
  • Gilts vs Treasuries. Bailey's pivot is gilt-positive at the front end; UK fiscal credibility and the Burnham/Labour leadership thread (flagged by Anderson and Saxo's John Hardy on Market Call, May 22) caps it at the long end.
  • Nikkei. Direct Aug-2024-redux hedge if Gayed is right; long USD/JPY puts double-cover.
  • CHF, the silence. Spot near 11-year highs and not a single podcast voice this week touched it. Either complacency, or the desks are saving it for paid notes. Worth a separate channel check; don't write a thesis off a vacuum.

What changed

  • JPM €/$ H2 target: ~1.20 to 1.13–1.15.
  • JPM RBNZ call: hike cycle pulled forward to July, 100bp cumulative.
  • BoE function: leading hawk to dovish-accepting (Bailey, via Snider).
  • ECB June meeting becomes the cleanest two-way risk left in G10, JPM dovish, Nomura hike. Size accordingly.