JPMorgan Turns Bullish on Dollar, Slashes Emerging Market Bets

Bank Reverses Course, Backs Dollar for First Time in a Year

JPMorgan's foreign exchange strategists are now bullish on the U.S. dollar, a significant policy reversal that marks their first positive outlook on the currency in nearly a year. The move is a direct response to rising geopolitical instability, which has reinstated the dollar as the market's preferred safe-haven asset. Intensifying conflict in the Middle East has pushed Brent crude oil past $90 a barrel, amplifying concerns about global economic growth and inflation. This environment pressures economies that rely on energy imports and reinforces the flight to the dollar, which tightens global financial conditions and typically erodes returns on non-U.S. assets.

Emerging Market Exposure Cut Three Times in One Week

Concurrent with its new dollar stance, JPMorgan has decisively reduced its exposure to emerging markets. The bank's strategists cut recommendations on the asset class three times in the past week alone. The downgrades included slashing bullish calls on emerging market foreign exchange and local rates to marketweight, while moving to a tactical underweight position on sovereign and corporate dollar-denominated bonds. This highlights a clear rotation out of riskier assets. While many investors believe in the long-term fundamental strengths of emerging economies, the immediate macroeconomic picture is dominated by external shocks.

We like the fundamental story across a lot of emerging markets, but unfortunately the fundamental stories don’t really count for very much right now, so we need this shot to pass.

— Nick Eisinger, Head of Emerging-Markets Sovereign Credit Strategy at JPMorgan Asset Management.