Global FX: Bullish Beta, Bullish Dollar

[MUSIC] >> Hello and welcome to JP Morgan's at any rate podcast. I'm Yrachanda Goh head of FX Strategy at JP Morgan. I'm very pleased to bring to you this week our full format, year ahead, mid year ahead, outlook round up. So this is going to be a quick fire out slightly longer format than usual. Are we going to go around the globe start with Asia, work our way through Europe and end with the US and America's? So as a background, when we wrote our year ahead outlook, that was at the end of the memory last year, the theme was bullish beta bearish dollar. The only part of that view that changed after the US and conflict was the bearish dollar part where we actually had a flipping view. We turned bullish the dollar as the conflict started. The idea was there was a terms of trade component that was helping the dollar. And since then, US exceptionalism has been making a comeback. Beta trades, which is FX Academy have actually continued to deliver for all the hand-ranging around the dollar view, FX Academy for strategy that's been paying the bills. It turns out pretty substantive year to date, particularly if you're looking at real year signals. And as we go into the second half of the year, the theme around bullish beta is still unchanged. That continues to be a core part of the theme. But the difference here is it's sort of being bullish beta bearish dollar. Be an bullish beta and bullish the dollar if that's possible. The reason to be bullish the dollar is US exceptionalism. We've unpacked that multiple times on this platform before. And it's basically the exceptionalism story, which is showing up on multiple dimensions, including yield supremacy. The dollar already yields more than half of the currency globally. Warsh was orthodox, which he thought was an outcome that we hawkish. But I think he was even in the underlying commentary more hawkish than we had anticipated. With given the emphasis on price stability. And then certainly the darts of our hawkish as well. So we're going to unpack that. But as we've written and discussed in the last podcast, the typical playbook for this is for the dollar to strengthen in the six months of going into the first time hike. So still thinking this is potentially a bounded move on this. And it does require sort of to be corroborated by the data. So it's not going to be a straight line. So it is binary. It is data dependent. But for what it's worth a year or a dollar downside target if you can talk about that. It's already out of consensus. Bearish at one 13 on the downside. We do see that sort of shifting lower towards the one 12 area. One 10 could also come into play depending on the timing and the intensity of Fed hikes. So watch this space. But in a nutshell, we are definitely constructive. The dollar versus low yielders like the euro. G10 in particular is chocolate of high beta low yielders that that should be under the under pressure in case the Fed hawkishness continues. The bullish beta on the FX carry part look the highest conviction view for us is actually the more constructive you on FX carry it can work in multiple scenarios even with fair hikes, even without fair hikes as this would, you know, in particular in the case of fed hiking cycle this kind of with pressure on the funders and as a net result, carry can still do well in that environment. So that team remains intact, boring but consistent. And as I said, staying the builds. But let's now unpack and start our journey around the world. As usual, we're going to try and keep it three minutes per speaker. And let's start with Asia. So I run them. You know, what is the view on dollar CNY from here? Obviously very much in contrast to what's going on with euro and broader Asia complex as well. And yeah, sure, the biggest point of focus for us in nation FX. Clearly the CNY as you say the view is heavily consensus. Almost everyone we know is bullish. Positioning is accordingly quite heavy. And the disconnect of dollar CNY from redifrentials. And dollar CNY is several big figures too low. Is beginning to look like a stretched elastic rubber band on charts. And that is the thing that is top of mind for people who are in this particular position. And all of this is happening at a time when China data seems to be rolling over. And as you said in your remarks at the outset, the FMC has just informed us that the Fed will no longer remain asymmetrically dovish. Now, if that sounds like the opening gambit or a V-shape change in view, I'll be sorry to disappoint you. It's not, you know, we are still moderately constructive CNY in the second half of the year. We think that the trough is somewhere around 670 or thereabouts. But we are not as build up as some clients we speak to who are targeting spot in a 650 to 660 sort of range. But we still net net constructive because A, flow support for the CNY remains as strong as ever. All be it with a bit of a mixed composition compared to early Q1, exporters are selling fewer dollars than before. Four in a row they're buying more Chinese assets than before and domestic outflows are a little less than before. So that's a bit of a change but most acutely and importantly for CNY balls, policy support in the form of fixings is still stubbornly intact and it's anchored by what we think is an important geopolitical event in Q3 which is another Preston Trump-She summit in the fall. So this is the tension between positioning, valuations and data on the one side versus the policies slash geopolitical imperative on the other side and net net we lean moderately constructive but we're trying to keep that optimism in check. And just a quick word in them on the highest connection use in Asia FX? Yeah so broad Asian FX remains unfortunately for us a bit of a straggler versus the rest of EM. I think a couple of changes in H2VH1 are probably worth highlighting. First is that there was a big North Asia versus South Asia gap that had opened up over the last several months because South Asia in particular was hit by the twin shocks of being on the wrong side of the AI trade as well as the energy shock because of the Iran war and most of South Asia are big oil importers. I think that gap is going to narrow in H2 because of the you know supposed resolution of these trade situation and also because South Asian central banks have stepped up resistance to FX depreciation and I think those measures are going to bite as we get through Q3. So we've turned somewhat selectively constructive in a place like INR which would be between underway for most of H1. The second change I'd say is that we've closed out you know optimistic bullish views on terms of trade beneficiaries and not a lot of them in this part of the world but Malaysia was one of them that was benefiting from a high energy crisis of the margin and I think that trade has basically seen its best days and then I think the biggest story the headline story for Asia as a whole is going to be after the region's specific energy shock comes the global beta of higher US rates and a stronger dollar in the second half. So there remains a lot of work for central banks to do and we continue to like the region's low yield or such as the same dollar and the thighbar as funding trades, funding legs of credit rates. That's great thank you and let's move to Japan, Jr. Yes so in conclusion and we think it is likely that the rain will continue to rally and that probability has increased that our long-held target of the day 164 will be leached in the second half of this year. The key catalyst for further in life are road US dollar strengths, driven by hydrogen and expectation for headhides and the possible resumption of concern about Japan's fiscal policy. On the former historical patterns suggest that in the six months leading up to the Fed's first fight in the cycle, there are 10 to 2 rights by 4.5% on double age. On fiscal policy, I think we'll comment separately. So I would like to focus here on the move intervention. For Japan's authorities, the ultimate line in the sand level of the rain appears to be a cycle high at 162. Therefore, if the rain continues to rise from here and approaches 162, another round of intervention is likely to happen. Meanwhile, however, Japan's authorities are likely keen to avoid the perception among the market participants that as significant decline in effects reserves have materially dampened the capability for further intervention. From this perspective, we expect any additional intervention to be kept at around 12 trillion yen at most, broadly in line with previous operations in April and May this year. Given that the rain decline triggered by that last intervention was fully reversed in less than one month. Another round of intervention is also likely to be insubstant to hold the uptrend in the rain. In particular, a pitch is supported by fundamental factors like the restaurants among high-due expectation for Fed Hikes. That's from me. Thanks a lot, Junia. So, Ikuei, let's move to you on the fiscal side. I think that's been a big sort of sort of pressure on yen, given the rise in JDB yields, but maybe you can just walk us through the timeline there. Yeah, thanks Mira. So, for the coming weeks, it'll be important for the Japan's fiscal policy. The first of all, in July, the PM Takai Chi is going to is expected to announce the basic policy on economic and fiscal management and reform, which basically sits out the guiding principles for the fiscal policy going forward. We just had this supplementary budget for, um, in 526, 3.1 trillion yen, but this is merely for the energy subsidies. So for the upcoming additional fiscal packages, the guideline will be is likely to be shown on July. So that's something to watch for. Um, and another, because of this fiscal concerns, we continue to think that the Japanese institutional investors have remained absent from the JGB market, um, participant, um, despite the sharp rising the yields. Um, so we think that the repatriation story from the, um, repatriation story is likely to remain subjewred um for second half, but, um, it does, uh, worth highlighting that one potential wild card to monitor is GPIF, which will show its annual report in the first week of July. Um, and the, we will watch closely for potential change in the JGB allocation for the GPIF, um, which could potentially allow the JGB weight to increase and the, to potentially support the, um, both JGB market and the M market. Thanks a lot, Nikoi. Um, I run them before, uh, before being hop off, um, maybe, I know you're going to do a separate podcast on, um, effects options, but any high level takeaways for the macro listener? Emira, yeah, uh, you know, for the um, team time in recent years, I seem to be answering this particular question by saying, we are entering so and so phase of the year with FXVOL at multi-allows, right? And, um, I'm sorry to report that, that is once again the case, you know, with VXY, very cheap versus business cycle drivers, our timing models are starting to turn more defensive, but the problem is, uh, the difficulty in identifying catalysts, X-anti, that will cause a, a big turn involved. So in general, the second half of the year tends to be a half of two halves almost, uh, the first part is characterized by summer doldrums that may unfold in July into early August. And then things seem to pick up a little into Jackson Hole and back to school in the US fall. So I think that should broadly be the contour of all this year as well. We are mindful that there is not a lot of value at these levels of all to be engaging in classical, volkary harvesting strategies. So what we are telling clients is that your primary alpha team for the second half is to exploit the high carry by vol ratios through options in this specific spots like sterling swathes like dollar Hong Kong where these ratios are extremely elevated. And, uh, for prudent portfolio construction purposes, we are also pairing those carry trades with, uh, carry efficient ways of, uh, being bullish fall and owning dollar correlations. So net long carry and, uh, net long vol, sort of measuring the bullish dollar, bullish beta barbell that you discussed on the macro side. All right, thanks, Ari. Let's just wrap up with the last, uh, but not least in Asia, Ben Garman, uh, any thoughts on anti-podians. Thanks, Mira. Um, so with the Aussie, you know, I think there's growing appreciation that the forces that drove out performance closer to the start of the year are waning somewhat. So there was obviously the, the RBAs uniquely hawkish take at the start of the year, um, strong inflation numbers, which we had coming in and then the middle east, uh, situation kind of driving a bit of a terms of trade energy kind of story. So we think largely speaking, those are some setting now, um, a couple of things maybe which I guess have been a little bit less appreciated. One is just on the China side, um, you know, we've remarked globally about China's underperformance, uh, in, in economic space, but just the correlation that we've seen between, uh, Aussie FX and, uh, China asset returns since, um, late February has been pretty striking. So we think, you know, on, on the downside, there is still a bit of a weight around the neck of Aussie, um, in the absence of a China data recovery. And that's starting to bleed into some other proxies like, like, I know, um, then pro, I guess on the other side, there's probably a higher floor for Aussie, you know, then we, uh, looked at last year, given that we have accrued, you know, three hikes and obviously carry and, and still a pretty supportive fiscal situation. But we think that the inflation side of things, um, is probably a bit underappreciated in the sense that, um, there is growing downside risks to the RBA's forecast. So to the extent that we've already had the bad news on growth, um, from higher interest rates, there's maybe a bit of a silver lining here in that if inflation comes down, um, as we expect a bit faster than the RBA expects, it's going to lend a bit of a, I guess, less constrained sort of outlook, um, on, on the economy from here. So, you know, kind of tight range, but ratcheting lower, we think for Aussie is, is the outlook for the second half. Um, for Kiwi, uh, you know, I think the, the directional story has been pretty straightforward, which is that the RBNZ is probably going to hike from a quantitative levels, growth is picking up. There's been quite a bit of skepticism, I'd say, in terms of the client set of, you know, can they deliver the forwards and harrow buses, the recovery? Um, I think GDP numbers this week give us a little bit more faith. And particularly because we're now seeing that feedback loop from our population growth, uh, into, to GDP itself, which I think tends to be underappreciated at these levels of, uh, net, inbound migration, you're adding about, you know, four tenths to GDP growth every quarter, um, sort of straight up with that, which tends to over time feed into stronger housing market and make financial conditions feel just a little bit, um, less restrictive. So, I think that virtuous cycle is still broadly on track. I keep some somewhat more constructive Kiwi, but of course with the caveat that, um, we're doing a globally, uh, you know, growth to be on track and financial conditions via the facehound to not be too much of a headwind. Thanks a lot for that, Ben. Um, do agree that the domestic backdrop in Australia is not really providing new catalyst for strength, but the carry, uh, to element is still, I think, constructive for, uh, of the dollar, Kiwi on the other hand, even though the bottom up story is changing, I think from a top-down perspective, the yield deficit, the carried deficit, the large external balances, um, are all too big, too large of a headwind, and I think it's a bit early to sort of engage in bullish Kiwi views. I think it's better used as a hedge from a top-down perspective, uh, for what it's worth. But, um, let's go on to Europe. Um, I think, um, you know, we, we already spoke about your dollar, which is, you know, we do have a bearish, um, stance in general, uh, on, uh, on the euro, uh, given the lack of yield, the lack of growth, and now with some of the twists that we're getting on the US side of the equation, uh, sort of looking at, um, uh, you know, targets, which are closer to 110 or 21, uh, 13, let's call it. Uh, but James, why don't we just drill a little bit deeper into the DM European currency outlook? Yeah, sure. Uh, thanks, uh, Mira. Um, so in terms of Europe, um, I'll start with Sterling, and, you know, as, as we speak here, we have the, uh, the maker field vote, uh, today and tomorrow, in terms of the, the results. So, you know, we're, we're pending that, but there is a lot we can say about the second half of the year in terms of, you know, I think the first few months, potentially, are going to be a bit more tactical. Um, it's going to be a scenario dependent, um, but we, we're more of the bias to kind of tactically buy dips in Sterling. And so if you think about the, the different scenarios out of maker field, um, perhaps one of the more bearish ones might be if Burnham gets a large majority, say well over 5%, um, and then there's a kind of relatively swift correlate coronation for him in in July. And that maybe he takes a bit more risk with his policy message. I think you could, you could easily see Euro Sterling and test the, uh, the trend resistance channel that comes in and comes in just above 87, which is around, you know, coincidentally, around about where fair values as, as well. And, you know, unless he goes really quite extreme with his policy message, we actually be minded to, to, to, you know, to be to fade out the Sterling weakness at that point. And the more kind of benign scenario might be, um, you know, if, if Burnham wins, but Starmer kind of puts up a fight, you end up with a leadership contest that runs through some of recess might include streating as well. And then, you know, Carrie and positioning in UK resilience and maybe even the Bank of England are a little bit more supportive for Sterling. And you could see a little bit of a squeeze of shorts, um, back down through that key support that we have just below, uh, just around 8620 in Euro Sterling. And that's, that's what we're kind of waiting for. But what we can say a bit more certainly as you get deeper into the second half is that as you get closer to the budget, the autumn budget, um, as you get to the point where, you know, Burnham's true intentions with policy would become a bit more clear. Um, you can you know, bake a fair bit more fiscal risk premium into sterling, you can, you know, potentially see Euro sterling head up towards the kind of 88, 88, 50 area as as burns intentions for the budget become a bit more clear in the scenario that he becomes the M that's still obviously to be decided. So, those are the kind of scenarios we're thinking about, but we are more biased towards the end of the second half of the year and we're sterling could actually vacate some risk premium and over the next couple of weeks where we're a bit more neutral, you know, thinking about sterling bit more tactically. For Nokia, you know, you've had a bit of a backup in valuations since late May, you know, part of that driven by the dollar, part of it driven by the move in terms of trade. And we are minded for that to reverse and you know, you're in occupancy head back down towards the kind of 1090, 1080 type level. You still have really solid supports in terms of what was, you know, if we just think about what we saw from the non just bang today raising the news for rate, signalling some chance of more than one hike. And we say that August is is on the table for a hike that just immense the status as the high yield during in G 10 keeps those carrying flows coming in we think and as in addition to that, you still have resilient domestic growth. You know, you have the non just bank buying the currency and you still have an environment where we're not fully out of the woods yet in terms of the Iran conflict and editing prices are likely to to on impartial normalize so we're still very constructive on Nokia as a currency and then I'll talk about Swiss as well. I think there's some some very interesting properties for Swiss in terms of thinking about it as a way to trade much more resilient global growth. Particularly against the the higher beta currencies. And we think about the fact you've had a war and an energy supply shock and you still have the global manufacturing PM I'm making new cycle highs. I think it's a dangerous game to try and be fading that even in the world where central banks are tightening. But in that more central banks are tightening Swiss to stand out as a funder particularly against the you know when you think about the other funders that you have available. And then you have the risk of environmental intervention. But you know what we saw from the SMB today was them maintaining the guidance around the currency maintaining a heightened willingness to intervene. And that that keeps Swiss as a funder it also creates some so no symmetric properties in terms of when you do get that risk off they are more willing to to be there in terms of in terms of your Swiss. But the way we're thinking about it is it's more versus the high beta currencies. I think the issue for your Swiss is that your zone growth is it the optimism there is not quite what it was it's more of a global story. So not necessarily looking for your Swiss to to mode to higher it's more of a total return type of paradigm for for Swiss where you're thinking about the carrier. Thanks thanks a lot James let's let's move on and wrap up the rest of the year of October one of the main takeaways from you. Hi Mira I want to make three points I'll start with the bear stock you and then I'll get to broader flows. On stocky now with the end of the conflict there are questions about stocky being a recovery candidate given it's an importer but we don't think so given it's low yield and domestic headwinds because the bear story wasn't just about the conflict. So if we ask what it would take for recovery I'd say on the domestic side. The conditions are firstly for growth and inflation to pick up after the ms expectations for several months and secondly for equity momentum to move back consistently in stocky's favor enough to encourage retail to repatriate again like we saw on q1 and that's currently against it and incentivizing net outflows. But even if those domestic both boxes are ticked I'd argue the more important driver is what US yields and data do. Because in recent years these have actually mattered more for your stocky than rate the friendships on their own and so even if the domestic picture were to improve or you're getting relief on. On the energy side it's part of stage a recovery for stocky when it's a low yield globally and the fed is hiking. And then I touched upon this stocky equity flows but I'll also give you a rundown of broader flows in G 10 and on the trade balance and hedge ratios. So looking at changes in the trade balance is the conflict. No key cat and a dollar have improved which you know makes sense given their energy exporters but Aussie stands out with a deterioration including on the fuel balance because of oil imports. And this also comes against the broader trend deterioration in its current account since 2022. And meanwhile Kiwi's trade balance has actually improved relative to this time last year and that's also part of a broader trend improvement in the trade balance and current account. But now if we zoom out and look at how yields compensate for current account deficits even with this narrowing in the deficit Kiwi's yield is still too low on a relative basis. Since it's still the lower yield lower yield during the block of similarly large deficits so it's still not very attractive from that standpoint. But you know net that it is an improvement relative to half a year ago and meanwhile Aussie looks a bit worse than it used to on this basis. And lastly the third point on hedge ratios the bottom line is that hedge ratio increases are not a live FX driver and for the second half right now since they've gone largely dormant except for the latest q4 data for Aussie which was showing a continued gradual increase. But in Europe ratios rose in 2025 but then time year Danish and finished data showed a partial reversal since then. And we think they'd only really react to it if you're getting either a weaker dollar range break or another dollar equity correlation flip like we had in the first half of last year. So for now they're not so much in play. Okay thanks a lot Octavia. That's more one I think I think the main method so far is that the bearish sort of stance on some of these cyclical low yielding GT and high beta currencies is is appropriate things like stocky Kiwi cat for example. But Aneshka let's go to the more optimistic side of the world if you could talk about your top all weights in the EM side and also if there are any good risk hedges are short within the EM space that you would like to flag. In the EM and lot of space we are quite constructive on effects it's partially driven by the higher yielding aspects but let me highlight a few stories that that stand out in terms of the bottom of fundamentals. The first one I would highlight is Hungary which has been on our radar for a long time but what I would emphasize is that following the election effects strength in my opinion remains a core part of the government strategy that is necessary in order to achieve the martial criteria and objectives that they have on your adoption. Let me explain that a little bit more for your adoption to be achieved the government needs to deliver a much lower fiscal deficit they need to deliver a lower inflation and for both of these objectives they need to deliver a lower policy rate for sustained period of time. So that long end yields decline and they can refinance that at the way you and always the inflation picture helps now for these objectives together with in an environment where the growth is likely to be strong because of EU funds effects strength sustained effects strength should be very much part of the package. Additionally we also expect the currency to be much less volatile as the fundamentals continue to improve so that's that's one story. Another one I would highlight from bottom of perspective is Mexico where we are also constructive it's like a different story what I would emphasize there is that the currency continues to enjoy very strong BOP support. We do not think it's heavily positioned at the moment the strength in a Mexican peso in our view has been primarily driven just by the fundamental BOP factors and what is interesting there is that we think some of the US MCA uncertainty impact on investment or FDI could start to fade as businesses move on from this issue. And we could see growth pick up into the second half of the year and 20th of the seven which in turn would then make the central bank much less. the wish with basically the next move right, we have not a cut. Final story to highlight is South Africa where our own commodity projections are for continued and meaningful increases in the terms of trade, which then obviously supports the current account and the general fundamentals of the currency to get away the fact that the central bank has turned more proactively hawkish. Now in terms of any hedges or shorts, this is where it's a little bit tricky in these two regions because obviously for the external environment, transfer is sour, everything can so on. But when they go bottom up, when we look at the country's fundamentals, in Imiya, Imanulana specifically we struggle to identify currencies that particularly problematic setup with, let's say, balance of payments issues or to all reveals. So on that front, actually the fact is that the bottom up stories do not very easily advance themselves to shorts or hedges. Okay, thanks a lot for that, Aneshika. It does reinforce the point that a lot of the funders and hedges risk hedges actually come from the DM side. Antonin, quick rundown from the systematic models of what should we be thinking about as we go into the second half. Sure, ma'am. I'm going to start by reminding where we are in terms of FXRIVA or the year to date. So the first alpha has been characterized by generally okay for our cyclical trades. Equities are up against if there has been some volatility and we also seen a recurrency inflation and all prices. So in the FX context, that means that global and EGM caribas get did well. But the key point was on the implementation. Like the Alcalia has delivered twice the return of the nominal risk adjusted basket as the context was generally more inflationary. In GTN FX, that being quite logical in the context of IELD, and share and the liabilities of prices. I bet a commodity IELD, such as OZ or Nokia, topping the cross section here to date versus lower low IELD, such as Yeno stocking. If I look at a bit my difference, GTN systematic basket, everything is sort of a because Nokia and OZ concentrated most of the positive points during the first half versus on the other side of Yen, for instance. So if you look at Carrey, Fiscal, Thermothrade or Gross basket, all are sort of a bit it was mostly driven by long enough no versus short in Yen. So it's a bit difficult to isolate the driver during the first part of the year in GTN. No, if I look at my, I would say top 3.4 the second part of the year, further is no specific or predictable reason why Carrey should stop in FX, yield differential, that is essentially elevated in both GTN and YM. And the gaps are likely to be maintained a bit longer due to the inflationary students. The correlation with equities of the Carrey factor also decreases constantly, but in any case the AIT remains a strong support. And the FX carry is one of the prime benefits in the FX world. I would also say like the deficits of Y Yelder in general are better than historic allergies. So there is no especially quality red flag or anything on that side. So still bullish on Carrey. My second point is that the Yelder variable that will matter a lot obviously is a commodity term of trade of each currency. It's going to be quite similar to one AIT to the first half of the year in terms of driver, but in the currency that should be the top on the winners should be at the intersection of Carrey and favorable term of trade. The problem is that for 80% of the currency, you know, the universe of the term of trade is primarily a function of oil prices. So with a brand that's 70 or lower, which seems to be the, which seems to be a bit the trajectory for now, which means the reversion or complete reversion of the commodity term of 20 momentum for most currency. The best short in obvious CAD because Carre, Nokia, two AITs are universe on the long side. C3 and INR seems quite well oriented. If we have a escalation to 100 and 110 should be the same currency that performed during the first spike. It's likely dangerous for high beta commodity currency in case of risk correction, but they should perform anywhere over the long term. $1 would be stronger as well in that case. And for, I would say, more scenario of rent towards 90, which is closer to our commodity team. Call as the things that would be some friction even with a deal. The difference is that in this case, the FX is not clustering into two separate blocks in port, or as to say, exporters. The momentum is fading, but the commodity term of trade trends are not really reversing either. So this support exporters, but also leaves a room for some strong fundamental stories, even if the currency is an important. In that case, they would just go for Carre trade, long-avers, if low yielder was both imported and exporters in the longs, that should be the most favorable case for Carre. Finally, I would say the short point, would there be a bit of question of do DM Central Bank because they are I-King, will be a strong driver. So, is there going to be a question of rights trajectory and relative central bank direction, can emerge as a strong driver for G10? So it's a more than right momentum strategies that I'm referring to. Of you, it's not really as yield gaps are forecasted to stay quite elevated, and Carre has been dominated rates trend for more than over a year now. Like, good G10 Carre basket is up 8% versus all right momentum is done minus 5. Fudukatore economy is 4% or so not in a price for India, for rights trend or central bank RV to emerge compared to simply byings of yield differential. That's it for me. Okay, let's move on to the next continent then, heading to New York. Let's start with what's the latest on your mind. Obviously, we wrote about how the AI team would impact FX late last year. It was a big project for us. How it has that view been planning out and where to be standing that going forward? Yeah, thanks, Mira. Like you mentioned, we published our original AI FX framework back in November, and since then, two conclusions have really become clear to us. The first is that we now see a higher probability of a more dollar bullish AI exceptionalism outcome than before. And the second is that the AI trade in FX appears to be evolving from just FX carry to also include other factors like growth RV and commodities terms of trade. So touching on each of those points individually, on the first piece around the dollar, the main change that we've seen over the past couple months is that AI is increasingly becoming a geopolitical lever. The most recent episode that we saw was the US imposing some export controls around and through up base latest models. And we've seen some European leaders mentioned concerns about viewing AI more as a strategic dependency rather than just a purely commercial technology. So the way we're thinking about it is that if the US continues to widen the scope of its AI control perimeter and impose more of these sorts of export restrictions, that could widen some of the divergences between the US and the rest of the world and move us closer to some of these US exceptionalism type outcomes that are more dollar bullish. And as a reason for that, you know, one of the things that we will be watching in second half is how the role of AI as a form of geopolitical leverage continues to evolve. On the second point around what is the AI trade in FX? You know, in our original note, we'd mentioned that the cleanest expression was FX carry. And that is largely still true. You know, FX carry is still correlated with a basket of AI linked equities that our JP Morgan equity research colleagues have put out. But those correlations have come down a bit. And the correlations that have risen instead on a more shorter term basis have been factors like growth RV and commodities terms of trade. So if you put those pieces together, you know, what specific currencies are we really talking about? You know, on a currency level basis, the correlations with the AI equity basket is really highest for your sort of EM high-yielders like Mexico and ZAR and Hungary. And on the DM side, we really see it as as tight as for Aussie. So that's sort of how our thinking has evolved on the AI trade in FX. And as we move into the second half here, some of the key metrics that we'll be watching are the AI equity breath and crowding as well as how some of these correlations continue to evolve with FX carry and growth revisions. Look, what's the AI trade in FX? Just in one sentence. Sure, yeah. So when we originally published, we'd really framed it as FX carry. But now it seems like it's not just FX carry, but it's a mix of hairy growth relative value and commodities terms of trade. Those are really the factors in FX that are most correlated with the AI trade. Okay, Patrick, saving the best for last now. We had fed this week. And obviously there's stuff going on in CAD as well. So what are the main thoughts here? I think the fed meeting was quite a notable development, isn't it? Yeah, no question. Obviously, there are a lot of questions coming in. It seemed like the market was braced for kind of a new dovish fed chair, given all the discussion that was had. in the lead up. But I think realistically, traders didn't feel like they had an edge into this. And so a lot of people, I think, were running kind of clean books and just kind of like taking the press or as it came in. The reality is, I think it came across as much more orthodox and was expected. It was very direct about how committed they are to price stability. And then obviously the 2PM releases were very hawkish. That thing stood out to me was six committee members looking for multiple hikes this year. I don't think that was really expected anywhere on the street. And when you take into the context of price stability, again, I think we counted 13 mentions of that with some very blunt language in the statement. You've had some very aggressive curve flattening in our space, which really to me suggests that the market is embracing this idea that there is going to be some price anchoring here in that the signal is legitimate. But the dollar that is just absolutely straightforwardly positive. And we've noted as well that the dollar was running cheap to fair value on rates models. So it was kind of like all systems go for the dollar yesterday during the event. And it's extended into today, which I think is encouraging. More broadly looking forward, we're thinking about how does this really kind of map to the dollar on a longer term basis and last week in our research, we kind of put forth the anatomy of the fed hiking cycle with kind of a few main takeaways. First of that, traditionally, the fed doesn't do shallow hiking cycles. So if and when they do start hiking, it's probably going to be in a minimum of 75 basis points. Second is that on average, the dollar run up tends to be about 5% on a broad basis in the six months leading up to the first hike. And then finally, really kind of what determines the quantum of dollar upside is the pace of the hikes and the prevailing growth backdrop more so than rear evaluations per se. So taking that all together, basically, what we see is a 3% upside in the dollar here is a reasonable base case. If they deliver on that kind of lower end, 75 basis point kind of a hiking cycle. I think obviously very importantly, a decent amount of that is already in the price. Call it about 45 basis points in the OIS strip. It leaves about 30 basis points kind of still to go and backing out historical betas of the dollar to rate differentials, which is about 100 basis points of widening is about 4 1/2% dollar upside. That would imply about 1 1/2% upside in the dollar to Y. And then you kind of factor in the misvaluations that I mentioned up front on the dollar discount against rates models. And it seems reasonable that kind of like 3% is a reasonable upside to our get here for the dollar. Obviously not especially aggressive. You've touched on reasons for a year, I think why I'm not expecting necessarily a kind of explosive move. But the combination of the fundamental re-rating as well as evaluation that I do think can deliver 3 4% levels. And that still is material. And I think it certainly makes sense here. So I agree with you yesterday seemed like a very important development for the dollar to Jackery going into the second half. On CAD, yeah, we're still bearish. We have been generally since September of last year predicated on weak domestic conditions, trade headwinds, and very importantly, low carry. Those are all generally still persisting. In the year ahead outlook, we laid out pre-conditions to even start to think about getting a little bit more constructive on CAD. And that was basically unwinding the Canada-specific tariffs that are still in place and having some meaningful progress on the USMCA. Neither of those had been delivered. So for the time being, we're comfortable to stick with kind of the bearish-yong CAD with low carry, especially now that the terms of trade support, which was decent, as Octavia mentioned, over the last couple of months, that is obviously actively fading as a Brent trades on to the 70 handle. So pretty comfortable here, just kind of funding higher beta or higher carry, prosycical trades out of CAD at the moment. Thanks a lot, Pat. Well, that just about wraps it up. Bullish beta, bullish dollar are the buzzwords. Please take a look at our website if you need more information. This communication is provided for information purposes only, please report to JP Morgan Research Reports related to its content for more information, including important disclosures. In 2026, JP Morgan Chayden Company all rights reserved. This episode was recorded on June 18, 2026.