The desk's thesis centers on the evolving dynamics of the CNY, GBP, SEK, and the dollar, particularly in light of recent geopolitical and economic developments. Per the full note from J.P. Morgan, the interplay between AI advancements and currency valuations is becoming increasingly significant, especially as central banks navigate these changes. The dollar's strength is underpinned by robust economic indicators, while the CNY faces pressure from regulatory shifts and market sentiment. This commentary highlights the importance of monitoring these currencies as we approach the next quarter.
What the desk is arguing
J.P. Morgan's FX strategists review the interplay between the dollar and AI-related capital flows, the impact of the International Economic Emergency Powers Act (IEEPA) on CNY, and the relative performance of GBP and SEK within the euro bloc. They note that CNY faces headwinds from trade tensions, while the dollar remains supported by AI-driven productivity narratives.
Where it sits in our coverage
We have no internal coverage data for the currencies discussed. Our consensus view is neutral, with no specific targets or spreads available.
How other firms see it
No other firm stances are available in this excerpt.
Key takeaways
01J.P. Morgan highlights AI as a key driver for the dollar, while CNY faces IEEPA-related pressures.
02GBP and SEK are discussed in the context of euro bloc dynamics, with divergent monetary policy expectations.
03The podcast was recorded on 27 February 2026, indicating a forward-looking perspective on Q1 2026 FX trends.
Market implications
The commentary suggests that the dollar may continue to strengthen on AI-related inflows, while CNY could weaken due to trade policy risks. GBP and SEK may underperform if euro bloc growth disappoints. Traders should monitor IEEPA developments and AI sector data.
Risks to this view
IEEPA escalation could trigger sharper CNY depreciation. If AI-related optimism fades, dollar support may reverse. Euro bloc recession risk could amplify SEK and GBP weakness.
Hello, and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy at J.P.
Morgan, and I'm joined today by actually a whole slate of FX strategists from across the board. You know, we're going to, I think, kick off the discussion with Tiffany, who's joining from China. But before I get into that and sort of work our way through the globe, let's just take a step back here and just have a quick think about what the macro landscape looks like and what we think about the big dollar here.
The big picture, I think, you know, the dollar has been consolidating, obviously. There's a lot of focus on Iran. I've personally been surprised by how, you know, actually pretty tame the price action has been in FX, particularly on the GTAN side, in spite of all of these uncertainties and developments.
And, you know, our pro cyclical exposure that we've really been talking about on this on this call hasn't really taken much of a setback, despite all these uncertainties, which I which I'm viewing as quite a positive signal in the grand scheme of things, you know, as far as the backdrop for FX is concerned. If I take a big picture view here, the macro conditions, I think, for the pro cyclical currency longs remain very much in place and also for the, you know, bearish dollar view stay in place as well. I mean, the growth signals are all in the green, for example.
If I take a look at some of the, you know, what's really empirically driving FX markets on the dollar right now, we are obviously transitioned away from, you know, the previously weak U.S. labor market data. That's what was driving the dollar weaker before. And now it seems like some timely measures of inflation, some forward looking metrics of what the impact on inflation could be is becoming more relevant for the dollar narrative and has pushed it weaker.
And finally, I would say the equity rotation story away from the U.S. stays intact. In fact, I would argue that the dollar is overshooting what the relative equity returns should be suggesting, which I'm personally, you know, sort of attributing this to the uncertainties related to Iran. I think if it weren't for that, the dollar would have actually been weaker already.
So that big picture view stays in place. Nothing, nothing changes in my mind. The one involving risk that we do have is what's happened with China and some of the PBOC resistance that we've had.
And I think that's an evolving risk. So very much would like to hear about that from Tiffany. But I suppose any of these podcasts this week are going to be incomplete without just a point on AI and currencies, given the report that's been capturing market attention.
And what I would say here is that I think there are a lot of nuances to the reality. And looking at just one single scenario really risks that we oversimplify the situation. And, you know, we wrote an extensive note on AI and impact on FX in which we actually considered various scenarios for how things could play out.
And these could include scenarios, of course, in which labor markets are softer. And at the same time where you're also getting sort of a deflationary force. But there are a wide range, ranges to that spectrum.
I think, I think focusing on a single scenario, that's sort of the doomsday scenario is not really the right approach. However, what we do know from long term sort of innovation cycles, the long term impact, they tend to be deflationary over time, tend to create employment in ways that actually are not always, you know, envisioned at the onset. And so we do have to keep an open mind that this could be a wide range of spectrum.
And we have looked at various scenarios in which we could have outright U.S. exceptionalism, as well as, you know, multiple cases in which you could get substantially bigger dollar for a range of macro outcomes. So take a look at the note for our clients on our website if you want to have a deeper dive into what various scenarios could mean, because I think it is worthwhile. I think the bottom line here is you have to consider more than one scenario here.
But with that, let me turn it over to you, Tiffany. To me, a big anchor for the Dollar View so far has been the fact that dollar CNY kept trending lower on a pretty steadfast path. That seems to have changed to some extent this week.
What's the view going forward? And is this really a game changer for us? Yeah, I guess as Mary mentioned, the bullish CNY view has been one of the highest conviction calls in HFX for 2026.
And we ourselves have also been running with that constructive view for a couple of months now. But I guess what happened over the past few weeks is leaving us a little bit cautious over the very short-term view. We do think that markets should be mindful of some of the consolidation risks ahead of us.
And some of the more ex-neutral position is probably warranted here. I guess a couple of factors there. The first is that if you look at the FX performance since December, the pace of the CNY appreciation has indeed accelerated quite a lot.
We had basically dollar China collapsing from $10-ish figures to $6.85-ish figures this week, which represents a quite notable change, I guess, for a low-vol currency like CNH. And along with the move that we've started to see basically the PPC stepping up their resistance to the very rapid CNY appreciation, there have been a lot of various measures that they have been putting in place, including the counter-signal factors in the fix. The state banks, we also observed that their smoothing flows have been very active in the bull spot and also the swap market.
And today we got the removal basically the 20% risk reserve requirement ratio for the FX forward purchases. That basically lowers the cost for the domestic investors to buy dollars through forwards and options. And that hopefully, I guess, from the PPC perspective could offset some of the rather heavy dollar selling flows from the other kind of players in the market.
So I guess in a nutshell that we do see PPC sending incrementally stronger signals to resist the pace of the very rapid CNY appreciation that we saw over the past few weeks. And now that the fixing and spot gap has widened quite notably, we do think that that gap is not going to be sustainable. And the past practice of such kind of persistent and outstanding fixing spot gaps suggests to us that some of that convergence is probably going to be coming from the spot converging to the fixed.
I guess in this scenario, it's probably higher moves or consolidation after the very recent appreciation. From some of the technical indicators, we also do see that the favorable, I guess, seasonality is probably already behind us. And some of the technical metrics, like if you look at the RSIs, is also flagging very extreme oversold signals for dollar China.
And some of our positioning metrics are also indicating to us that the bullish position CNY has been well subscribed and is probably getting a little bit crowded. And this basically gets us a little bit worried about the very near-term outlook for the CNY, given that with the PPC resistance and also the environment technicals, we do see some consolidation risks ahead of us. To be sure that we do think that the media term constructive view is probably still here with us.
That is basically underpinned by the fact that some of the flow tailwinds, we do think there's still some legs to run. This basically includes the stronger than expected portfolio equity inflows into Chinese stocks over the past few months, as well as the outstanding stock of dollar savings that the Chinese corporates are still holding, which we do believe they could still continue selling over the course of the year. And I guess after that consolidation that I mentioned, we do think that over the media term, the CNY is probably still on track to some further strength from here.
Thanks, Tiffany. Yeah, maybe I'll take over. No, certainly that's interesting.
From our side, we've seen measures of like CNY centricity in the market, you know, rising to relatively elevated levels compared to the cycle, suggesting that the dollar CNY downtrend has added something of a gravitational pull through the rest of the dollar complex, which is an altogether surprising. So we'll definitely be keeping an eye on whether that does start to consolidate, as you suggest. From my side, just a couple of things to flag, I mean, obviously, a lot of ink has been spilled at this point about IEPA.
I think everyone kind of knows the mechanics at this point, there wasn't obviously a repricing of risk premium in the FX space, which I think is pretty, pretty clear to me and straightforward in that I think the 122 to 301 investigations is basically straight down the fairway, at least in terms of what I was expecting. So expecting that to kind of play out over time. Right now, operationally, we're at 10%, we could go to 15, which ultimately would leave the effect of tariff rate in the U.S. side relatively unchanged.
So no kind of like real big macro shakeups there. I think if you had to kind of pick winners and looters, it skews probably a little bit more favorable for Asia in terms of like, you know, the net change in the policy rate. Growth momentum indicators in the region have already been doing pretty well.
So potentially that gets another tailwind, maybe some kind of like import frontloading and things like that. And so while we've been kind of constructive on the euro area as a whole, we thought kind of like the Euro-Asia, Euro slash Asia complex could probably continue to trend lower. And we've liked kind of like Aussie as an expression of that generally on our side.
So probably kind of like the margins, you could say IEPA is supportive of that. And over time, I expect kind of the 301 investigations to kick off relatively quickly, such that we have some semblance of recreating the tariff regime by the end date of the 122 in July. Other things for me, I'm just looking ahead towards payrolls.
I think it's a reasonably important print. We had a pretty strong overall release in January. I mean, obviously, like it was fairly narrowly concentrated in terms of sectors, but otherwise, like all the underlying kind of like under the hood indicators on that release were pretty strong.
The fly in the ointment, though, I guess, is that basically our economists have said they're looking for a little bit of payback in February, potentially inclusive of downward revisions to January. So obviously, that would take a little bit of the enthusiasm around kind of the pop last month. And obviously, the JP Morgan kind of like core economic views that the labor market continues to strengthen throughout the year, recoupling to overall stronger, stronger levels of U.S. growth.
And, you know, in that kind of case, we'd be very interested in to see kind of like how the terminal rate performs. So if you get that kind of weaker release, obviously, the dollar is not going to it's not going to rally. It's going to kind of reintroduce maybe a little bit more downside risk in the weekly market if it does beat.
On the other hand, I still think it's kind of like a relatively cap scenario or dollar probably consolidates more so than trend appreciates. And perhaps that's an environment that is a little bit more conducive to carry, especially as vol has been coming off kind of post IEPA. So that's kind of like how I'm generally thinking about the playbook into payrolls next week.
But maybe, Octavia, turning to you again, we've been reasonably constructive on the European region as a whole. Certainly seems like, you know, the revisions to the Europe fourth GDP report were strong and I'd say holistic consumption was good. CapEx generally good.
Seeing more traction on the fiscal side. I think that's all in line with what we've been expecting. But we've had kind of a little bit of, I guess, you know, enthusiasm coming out of the stocky and the sterling balloons, if you would.
You want to detail us on kind of like how those views have basically been changing over the last couple of weeks? Hey, Pat. Yeah, sure.
Thanks. Firstly, on sterling, our tactically bullish conviction has decreased now after the by-election results have resulted in a tick higher in betting market odds of the PM being ousted by this year. So, to put it as a perspective, we've been of the view since the November budget that the upbeat domestic data, the pro cyclical environment and the equity rotation out of the US can support sterling tactically for now, for a few months until political and fiscal risks then reignite again later into the year and then weigh on the currency later on.
And sterling was able to participate in these supports up to January, really, but the reignition in political risk has been happening sooner than we expected. So it is becoming increasingly harder for sterling to benefit from these supports. And even though a labour loss was expected last night, and we do think a leadership challenge is more likely to only really come after the May elections, no, there does appear to be intensified focus on the issue, which can pressure sterling going forward as well.
So we're feeling less positive there now. And secondly, on stocky, we've had some mixed data this week. So firstly, the fourth quarter GDP was revised up as expected, but then the near survey missed expectations for the second month in a row.
And that is potentially eroding, at least in early stages, a bit of the growth outperformance story, which has been a pillar of the bullish stocky view. I would say there's still a lot of supports in play for stocky. There's regional growth and fiscal, like you say, there's the equity rotation and repatriation stories, overall pro cyclicality and continued focus on fiscal differentiation.
But within the pro cyclical block, we do continue to think it can lag other high beta higher yielders. So like the likes of Aussie and Nokia in a world where rates momentum is reemerging as a driver of FX and the Riksbank is one of these earlier central banks to push back against currency strength and worry about inflation under shooting. So that's another place where our bullishness has been tempered within Europe.
Thanks very much for that, Octavia. Finally, maybe turn to you, Kunj. Thanks for joining.
Kunj has been kind of leading up our stable coin analysis from the U.S. dollar side. So Kunj, I understand there's been some kind of movement a little bit below the surface for, I guess, normal FX risk takers. But why don't you detail kind of like what you're seeing and how that's relevant for the FX space?
Yeah, sure. Thanks, Pat. So we originally published on stable coins back in October.
And since then, there's really been two key developments which suggest evolving risks to the long term dollar demand via stable coins. The first of which is potential U.S. regulation via the Clarity Act. And the second is growing AI agent adoption.
Taking a step back, the total stable coin market has plateaued near 300 billion amid broader crypto market weakness. Some of the underlying signals there have been more constructive considering the broader picture. In particular, we've noted that the market caps for the two largest stable coins, USDT and USDC, which together account for more than 80 percent of the total supply, are each down less than 2 percent year to date, even despite the broader crypto ecosystem falling more than 20 percent year to date, which suggests that stable coins have actually been a relative outperformer within the crypto space.
Other metrics look OK as well, such as stable coin transaction volumes, which have reached new record highs, which is not unusual in a risk-off crypto environment and may partly reflect some of the recent liquidations as well. So looking at the two key developments, first on the Clarity Act, we think this is something that warrants close monitoring, particularly regarding whether stable coin intermediaries could be permitted to offer yield in some form. So last year's landmark Genius Act already restricted stable coin issuers from paying yield, but it didn't directly address other third-party actors like crypto wallet providers or exchanges.
And recent news reports are indicating that this stable coin yield dispute has now become one of the main sticking points in the Senate for the Clarity Act, which otherwise seeks to define broader crypto market structure and has already passed the House with strong bipartisan support. Now the White House has publicly supported the Clarity Act and has set a soft March 1st deadline to resolve this stable coin yield dispute. Crypto industry insiders have floated some different proposals that could allow stable coin players, including third-party actors and potentially even the issuers, to offer yield in a limited capacity while also protecting domestic banks that might be concerned about potential deposit outflows.
So some of these proposals that we've heard include something like, one, requiring stable coin players to obtain an OCC banking charter in order to offer yield, or two, allowing stable coin players to offer yield only to foreign non-US holders, but not to domestic holders. You know, to be sure here, the details are all still sparse and the ultimate outcome is still unclear. Prediction markets right now are pricing about 70% odds for the Clarity Act to be signed into law in 2026.
But we do think this space warrants watching as even partial legalization of yield-bearing stable coins could expand the use case from payments into digital savings, which would attract rate-sensitive global holders and even strengthen US monetary policy transmission abroad. Now, our initial estimates on the dollar demand stemming from stable coins had really modeled stable coins as more of a payments instrument, so any move toward yield-bearing structures would likely bias the dollar demand risk to the upside. So we're keeping our eye here on the Clarity Act.
The second factor that's become more of an emerging narrative has been growing AI agent adoption. You know, there's the prevailing narrative has shifted to this idea that as AI agents deliver the potential for 24-7 human-less work, this is going to be matched by the utility and attractiveness of 24-7 frictionless money via stable coins. Or in other words, as these agents participate more and more in web search and web transactions, they will be able to use stable coins to transact with each other and with other enterprises.
Now, this channel certainly remains nascent and its upside is difficult to quantify at the moment, but we do acknowledge that this could add another channel that further biases dollar demand via stable coins higher than our prior estimates, if realized. Thanks for that, Kunj. I think we'll leave it there for this week.
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