JPMorgan Chase, America’s largest bank, recently admitted that a trading strategy betting against emerging market currencies flopped.
A Risky Trade Gone Wrong
Following President Trump’s “Liberation Day” announcement on April 2nd, JPMorgan Chase advised clients to bet against emerging market currencies. This was based on the expectation that Trump’s tariffs would hurt these currencies.
However, the opposite happened. Since then, at least 14 emerging market currencies have actually performed better
than the US dollar, with the Taiwanese dollar leading the pack.
Missed the Dollar’s Weakness
JPMorgan’s strategists underestimated the impact of a shift away from US assets, leading to a weaker dollar. They hadn’t anticipated this counter-effect to the tariffs.
Changing Strategies
The bank has since revised its outlook. They’ve upgraded their view on Asian currencies, moving from a negative to a positive outlook. They’re now bullish on the Malaysian ringgit and expect the Chinese Yuan to remain stable.
Broader Economic Concerns
This isn’t JPMorgan’s only recent misstep. Last month, they increased their global recession probability prediction from 40% to 60%, citing President Trump’s trade war as a major factor. They also warned that, unlike in previous downturns, US stocks are no longer a safe haven.