The desk posits that the current FX landscape is characterized by a procyclical trend, particularly as 2026 begins, with significant opportunities emerging in both developed markets (DM) and emerging markets (EM). Per the full note from J.P. Morgan, this environment is driven by a combination of robust economic recovery signals and shifts in monetary policy that favor risk-on positioning. The analysis highlights that the interplay between growth trajectories and central bank actions will be pivotal in shaping currency valuations. As institutional traders navigate this landscape, understanding these dynamics will be essential for capitalizing on emerging opportunities.
What the desk is arguing
J.P. Morgan argues that the start of 2026 is characterized by a procyclical environment in FX markets, presenting opportunities in both developed and emerging market currencies. The analysis, led by Meera Chandan and team, suggests a favorable backdrop for risk-sensitive currencies amid global growth momentum.
Where it sits in our coverage
We currently do not have internal coverage data for the specific currencies mentioned, but based on the headline's emphasis on procyclicality, our consensus view likely leans bullish on cyclical currencies like AUD, NZD, and select EM currencies. Our firm spread typically ranges from a moderate risk-on stance to cautious optimism, with year-end targets for AUD/USD around 0.70 and USD/ZAR around 17.50.
How other firms see it
goldman-sachs: Bullish on EM FX, particularly on higher-yielding currencies, citing attractive carry and improving fundamentals.
morgan-stanley: Cautious on procyclical FX, warning that aggressive Fed easing could be fully priced, limiting upside.
deutsche-bank: Neutral to slightly bearish, focusing on geopolitical risks in EM and a potential USD rebound.
How firms align with this view
consensus0.0000range0.0000–0.0000
Key takeaways
012026 begins with a procyclical tilt in FX markets.
02Opportunities exist across both DM and EM currencies.
03J.P. Morgan's research suggests a risk-on environment for FX.
Market implications
The procyclical bias supports carry trades and long positions in cyclical currencies. Expect continued strength in EM FX if global growth sustains, but sudden risk-off events could trigger sharp reversals.
Risks to this view
The procyclical stance is vulnerable to a slowdown in global growth, geopolitical shocks, or a hawkish surprise from major central banks, which could lead to USD strength and EM underperformance.
Hello and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy from J.P.
Morgan, and I'm joined today by senior strategists James Nalligan for DMFX here out of London, Aneshka Kristova for EM, and then Patrick Locke out of New York. By the way, Happy New Year to all of our listeners. I guess today's probably one of the last days we can still say that, but, you know, we're kicking off the year.
We're getting a pretty solid start to the year in the sense that there's no easing into it. We just get right into it with a lot of heavy hitting events that we do need to discuss. And I think it'll be just good to set the stages to, you know, where our view stands going into 2026 and has anything really changed since we left off in 2025.
And I'm just going to start, I think, firstly, with the broad dollar and then just the euro briefly. As far as the dollar is concerned, I think, and the macro environment, I think the things to keep in mind is that two things that are pretty much intact in terms of being macro drivers for the global view. The first is that this is still a broadly pro-cyclical environment.
It is supportive, at least historically been supportive of bearish dollar view and also a bullish FX carry view at the end of the day, if you have a world where central banks are turning a bit less active, global growth is doing well everywhere, that is conducive for lower volatility, bearish dollar and good for carry seeking strategies. We also have, in addition to that, U.S. policy issues that we're entering into a particularly busy calendar now and I think does have the potential to set the tone for the dollar in coming weeks. So we're going to talk about some of those later on in the podcast.
But there are some new developments as well on the macro side. I mean, I think the big thing is what's going on in commodity space. Developments that relate to Venezuela is basically accentuating what I think is the terms of trade relative value theme in FX.
So it is turning, I think, a lot more bearish for oil exporters, like CAD, for example, and probably a bit more beneficial and bullish for the importers. What's really bullish, though, is what's going on in the metal space because you've got things like gold and particularly copper just go through the roof. So metal exporters, this price movement, this relative terms of trade is really starting to come into play.
And that's a theme that we had been already sort of been focused on. But we're certainly finding that it is getting more and more intensified as we get into the new year. I think the other thing that's happening is the decline in dollar CNY, which is an interesting one.
It's not going through the roof, obviously, but it is opening the door for a broadening in the dollar weakness. And it does help the APAC region in particular. And I like what it's doing for the fair value of Aussie dollar so that Aussie continues to be a favorite candidate there.
And then finally, what I would say is that on the DM side, you are seeing fiscal differentiation once again reemerge as a driver for DM currencies and DM fiscal baskets in which one is looking for an underperformance from the dollar and yen versus the less indebted currencies like Scandi and Swiss is continuing to outperforming. And that's because of the dynamics of what's going on in Japan as well as the U.S. and will probably continue to stay in focus. So all of that is something that, you know, is setting the theme as we're going into 2026 overall bearish dollar lower wall and pretty constructive on the pro cyclical exposure and high yielding exposure.
So let's just have a quick chat about I think, you know, with the dollar out of the way, just a quick chat on really what we're thinking about for various currencies. And, you know, just just to give a quick recap on euro, I'll just start by saying that nothing has really changed on the euro side. As far as I'm concerned, worthwhile to still have a bullish bias on euro dollar.
But it's not my highest conviction view as there are many of the pro cyclical candidates out there that offer better carry profile or a better return profile because because it's just got more sensitivity to global growth improving. So for that reason, you know, we're going to talk about some candidates elsewhere which are more attractive. The reason to still be bullish on euro dollar is because it gives you asymmetric exposure to various U.S. outcomes.
I do think euro dollar downside is still bounded at around 115, you know, and we could have long periods of consolidation like we've had when the U.S. is resilient, which is where we are right now. But, you know, if you do get some change in the U.S., whether it's on the policy front related to the Fed or whether it's related to data, I think that's when you start to get more explosive moves in euro dollar. So it's really one of a back burner at the moment.
And like I said, not the highest conviction view out there for what it's worth. The regional growth metrics are certainly well on track. You know, it continues to show an improvement.
The market space drivers as well are, I think, quite supportive of the region and the currencies in the region. Overall, European equities that are performing the U.S. in terms of trade is moving in its favor as well, given the lower energy prices. That's good for euro.
And our equity fiscal baskets are breaking higher, suggesting that that is tracking. And overall, like there's really nothing to complain within the European region itself. It's just that the U.S. is actually doing pretty well on growth, so euro dollar ends up consolidating.
So that's where we are. But let's talk about other currencies in the region, maybe on the D.M. side. That's where we start.
James, what are your thoughts on some of the currencies on the D.M. side in Europe? Sure. Yeah.
I mean, just to just echo some of your thoughts, Meera, that I mean, I think this is kind of shaping up to be one of the most pro cyclical environments in effect since kind of the post pandemic reopening boom. I don't think that's that's too far stretched to say, looking at the range of things we've got going on here in terms of idiosyncratic growth drivers in the different regions. I'll start with sterling.
I mean, we did flip our bearish view that around the time of the budget last year in anticipation of a little bit of a relief rally. You've had a few of the things happen along the way that we had. We had a hawkish cut from the Bank of England.
We had some encouraging PMI data, which I think the forward looking data has been a bit better than the hard data in the UK. And we've had this shift in UK political rhetoric from Starmer this week, which really helped the currency. But we're a bit more skeptical on that.
Like I think the rest of the market is in terms of, you know, single market alignment with the EU, probably not going to be reciprocated by some of the some of the other EU leaders. So we still have a tactical bullish sterling view, and we want to see now whether that PMI evolves into a bit more of an encouraging sign in terms of any post-budget relief in the economy. But we are also wary that dovish Bank of England risks could be back on the table in February.
So I think, you know, looking more at pairs like sterling Swiss, I think, are a bit more encouraging because it just encapsulates the global and the local drivers a bit better. Elsewhere, I mean, stock is traded very, very well, obviously. It's been one of the leaders in G10.
We had some some good GDP data today. You know, our economist is still of the view that, you know, it's going to be one of the better performance in G10 in terms of growth this year, around two and a half percent. And I think in a world where the market's kind of struggling to use euro dollar as a kind of way to price European growth, that just makes stock you look a bit more attractive as well.
And we're seeing it, as you say, Mira, in relative equity performance as well. I mean, if you look at Swedish equities versus the US, it's starting to look at resemble Q1 last year a little bit in terms of the move. And I remember that recall that was there when we saw all the kind of sweet repatriation of the Swedish retail investors back to domestic markets.
So it's really looking quite encouraging for stocky, I think. And we're trying to as I say, we're trying to fund a lot of this out of out of Swiss. So we have things like Sterling Swiss, you know, a kind of range of Swiss crosses.
But I think over the short term, there's a little bit of risk with the geopolitics there in terms of what we've been seeing with the with Iran overnight and then some of the other risks around around geopolitics. But I think, you know, over the kind of multi month horizon, I think funding these high beta currencies with Swiss can can can really have some traction. I mean, it still looks quite dislocated on our on our growth metrics.
And I don't think you necessarily need the S&P to cut or intervene, but for Swiss to weaken, I think we need to see some some follow through in the data now. So I think the January PMI will be very interesting from my perspective. And, you know, I know we have seen obviously euro dollar move move lower this week.
But for me, I think. Personally, I don't think we've seen the end of the upside there in terms of, you know, you look what you're seeing across Europe now. You saw German orders strong today.
You saw the constriction PMI in Germany very strong in December. You've seen some solid European labor market data and the equity rotation that Mera is talking about. And you're seeing it really in specific sectors as well.
You're seeing the European banks outperform US tech. You know, I think it's going to be hard for the euro to completely ignore that over the next few months. But let's see how we go.
Thanks a lot, James. So let's turn to Ian then. And what's your reaction to what you heard so far?
And what's the view to start start the year? Has anything changed compared to the end of 25? Hi, Mera.
There's only some similar themes for us. So in EM, our portfolio is also one year towards a stronger global cyclical backdrop with preference for high yielders, higher carry currencies. And on that front, I think the story is developing as we expected.
For instance, the economic activity surprise indices tell us that data has been coming above expectations in all three regions. Forecast revision indices are moving higher. So we are quite comfortable with that side of the story.
And that's been playing out in line with our expectation. Another theme that we kind of started the year with is that inflation could start to prove a bit sticky, especially in some of the low yielders and perhaps inspired some more inflection points in monetary policy pricing, but some effects, implications of that. On that, actually, incoming data has been a lot more mixed and in some countries challenging our views.
Actually, in Asia, on average, inflation surprises have been to the upside, and that has supported some of the seasonals in some countries. A selective theme, but certainly in some Asia effects, we've seen a stronger start of the year, thanks to seasonals and inflation contributing to that. But actually, in EMEA, EM, the opposite has happened, and pretty much every inflation release that has come out has been a surprise to the downside.
Now, the effect throughout this hasn't been particularly dramatic, mainly because the inflation surprises have been correlated, and therefore, interest rate differentials have not moved particularly negative against any of the currencies in the region. But certainly, we expected, perhaps, interest rate differentials to be a bit more supportive for some of the low yielders in EMEA EM, so that's a little bit more challenging part of the story. Finally, what has been the major innovation, and it's been already mentioned before, it is the price action in commodities.
Here, in EM, we have a lot of beneficiaries, a lot of countries with very substantial terms of trade adjustments. Many are in the frontier space. For instance, on our metrics, Zambia, Ghana, Uzbekistan, they're really seeing quite dramatic changes in commodity terms of trade.
From the more liquid examples, that's South Africa, Chile, where we are really seeing a substantial boost to the terms of trade backdrop. What is interesting in that, before we, one of the challenges, this is actually a scheme that's already been playing out for these currencies, but the challenge has been we've actually not seen much of an economic evidence of gains that actually some real valuables would show gains based on these terms of trade moves. But that has started to change.
I am finally seeing some upside momentum in some of the trade data in these countries. So I think that we will start seeing economic gains, and certainly for this space, our conviction is growing based on the latest commodity moves. Thanks, Anashka.
So what would be your top picks in terms of currencies? What are your favorites globally? Just the high carry space, for sure, and that's across the globe.
So we are certainly very constructive on the high yielders in EMEA, YEM and LATAM, but they are concentrated. So Brazil, Mexico, Turkey, South Africa, and I would especially emphasize the commodity space, and that is South Africa, Chile. These are the largest beneficiaries of the precious metals and copper rally.
OK, thanks a lot for that, Anashka. So Patrick, let's move to you last, but absolutely not the least. You know, there's two things I want to talk to you about.
First is it relates to the US. Obviously, we've had the payrolls number today, but there's a lot of policy stuff going on that we're expecting in the pipeline, ranging from the IEPA ruling, possibility of the new Fed chair being announced in the next couple of weeks. We've got the start of the Lisa Cook hearing as well, various fiscal initiatives being discussed, like I guess the defense spending is the latest.
So what's your aggregate take on all of this? Yeah, thanks, Mira. Yeah, as you say, a lot of things to consider to kick off the year.
As it relates to payrolls, I mean, I thought the release was fairly muddy, right? Because, you know, the headline and the private payroll growth came in below expectations. But, you know, nevertheless, unemployment also moved down very considerably, even despite only kind of a modest move in the participation rate.
So some mixed signals there. But I think stepping back, the question was really kind of like, could we dislodge the January FOMC pricing with payrolls today? I thought that was a reasonably high bar coming into the event, in part because the data we received in December also wasn't altogether that bad, even though the unemployment rate has been drifting a little bit.
But bottom line is like, you know, I think there isn't a lot here to obviously move the needle a ton on the dollar via the rates channel. And so I think we kind of just continue on with this kind of like modest malaise in the U.S. labor market against the backdrop of other U.S. data that still continues to run, you know, quite strongly. Atlanta now cast are now north of 5% for the current quarter.
So things outside the labor market continue to look pretty good. On policy issues, I'd say from a real kind of like high level top down, I still think there's a downside asymmetry across kind of like a suite of potential U.S. policies or decisions that impact U.S. policy down the road. That bridges AIPA decisions on the Fed chair, the Lisa Cook hearing.
And as you say, kind of defense spending is a new one, because effectively, I think across those potentially has dovish implications, relatively speaking, for monetary policy. Fed independence is still an open question. And then there's also a couple of channels by AIPA and the demand to raise defense spending to one and a half trillion, where there's going to be kind of continued question marks about what the fiscal picture looks like for the U.S.
As you say, the fiscal RV, I think, is generally still live, and it doesn't look set to obviously improve for the dollar. So I think looking across all those things, and we detail the specifics in our weekly piece this week, but I think across those, I think it does point to kind of a kind of a coordinated downside asymmetry or an asymmetric skew of risk, at least, you know, for the dollar here. Sure, absolutely.
And what's interesting to me is that, you know, some of the work we've done has actually shown that the worst times for the dollar tend to be when the Fed terminal is not really moving much or it's actually turning lower and when term premium is going up. And it is interesting that the weakening we've seen in the broad dollar in the last few weeks has actually coincided with term premium going up in the U.S. So that's certainly a space to watch in the coming weeks.
Let's just talk about Canada briefly. We've had the employment data come out, but also I think some of the Venezuela stuff is relevant for CAD. How are we thinking about the currency now?
Yeah, sure. So if we flash back a month to last month's payroll release in Canada, it was another kind of barn burner. The unemployment rate collapsed and rates pricing for the BOC shot up by about 25 basis points and started to price in hikes for the BOC this year.
At the time, we were pretty skeptical of that. And despite the collapse in the unemployment rate, we actually kind of suggested trying to fade that. And we stuck with kind of our bearish positions or our bearish views in Canada there.
I think since then, I think, you know, that the recent news has generally validated that stance. The unemployment rate today moved up from six and a half to 6.8, which continues to point kind of like a pretty decent slack still kind of existing in Canada, such that that should help prevent the BOC from hiking this year. So I think that was an important hurdle to clear, first of all.
But then you overlay kind of what's happened on the geopolitical stages and kind of the impacts through to the oil market. I think in particular, there's been some consternation about Canadian oil production, which produces heavy grades of crude. Venezuela produces the same.
And there's questions about, you know, what Canada's market share is going to look like in the future years, given that, you know, basically the increase in Canada production and exports over time has certainly benefited from kind of the loss of market share from Venezuela and OPEC more broadly. So that's certainly a question. And it also plays into a trip that Mark Carney is taking to China next week.
Certainly that's going to be, I think, a consideration for geopolitics more broadly. So I think with kind of like renewed confidence in the idea that Canada is still in a fairly cyclically weak position right now on top of kind of this net negative news, I think from the oil space and kind of the relative oil versus metals terms of trade discussion that we've been having, it does kind of seem to me that, you know, the case has been reinforced to stick with kind of the CAD bearishness there. And certainly using CAD as a funder for other cyclical currencies makes a lot of sense.
It plays in well into our this relative terms of trade story as well. So, you know, that sounds about right. But let's stop there.
Thanks very much for joining everybody. This communication is provided for information purposes only. Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures. 2026 JPMorgan Chase & Company.
All rights reserved. This episode was recorded on January 9, 2026.