Higher core yields, sticky inflation see JPMorgan turn cautious on emerging EMEA FX

1 min read
FILE PHOTO: JP Morgan Chase & Co sign outside headquarters in New York

LONDON – JPMorgan said on Friday it expected currencies in Europe, Middle East and Africa to broadly suffer due to the prospect of higher core bond yields in developed markets, turning “underweight” from “market weight” on FX exposure in the region.

“The global inflation narrative is shifting from ‘temporary’ to ‘permanent’, raising the prospect of a sharp adjustment in core yields,” JPMorgan’s Saad Siddiqui said in a note to clients. “EM FX is unlikely to escape unscathed in this scenario. This leads us to turn UW FX in this region.”

However, there were some differences across the region on a granular basis. JPMorgan turned underweight South Africa with more risks ahead for next year after 2021, which had been “a year of largely ‘good news’ and said Turkey’s lira looked vulnerable, reiterating its cautious stance on the currency.

The banks stuck to its “overweight” position on both Russia’s rouble and the Czech crown.

“Impressive fundamentals keep us constructive RUB, despite the recent uptick in geopolitical gyrations,” the bank said.

(Reporting by Karin Strohecker; Editing by Dhara Ranasinghe)