Newsletter · · Ashutosh Agarwal

Bad US Jobs News Re-armed the EM Carry Trade - EM FX - Week of August 11, 2026

JPMorgan's EM desk finally mapped the Latin America carry trade after a shock US jobs report softened the dollar and the feared 2024-style yen unwind failed to materialize, for the week of August 11, 2026.

EM FX

Week of August 11, 2026: Bad US Jobs News Re-armed the EM Carry Trade

There's an old trading-desk truism that the market loves bad news when it means the central bank has to back off. That's exactly what happened this week. On Friday, the July US jobs report came in ugly, the economy actually lost jobs, and instead of panicking, markets threw a party. Stocks hit records, gold and copper ripped, and, quietly, the trade that funds a big chunk of the emerging-market world got a fresh tailwind.

That trade is the carry trade, borrowing money cheaply in a low-interest-rate currency (the yen is the classic one, near-zero rates) and parking it in a higher-yielding emerging-market currency to pocket the difference. When the US dollar softens and US interest rates stop threatening to rise, carry works beautifully. And this week the dollar softened.

The more interesting story, though, is who finally started talking. After weeks in which Latin America and the rest of the EM currency world barely got a mention on the shows we follow, JPMorgan's emerging-markets desk laid out an actual map this week, which currencies are safe and which are fragile if the party ends. That's the real news.

TL;DR

  • The July US jobs report was a shock miss: payrolls fell 23,000 when economists looked for a gain of around 80,000, and it knocked the dollar down and cooled bets on a Fed rate hike. Good for EM carry.
  • The carry trade barely flinched through last week's dramatic yen rescue. JPMorgan says its carry baskets fell only about 1%, versus a 7%-plus wipeout in the same stretch of 2024. The feared repeat of the 2024 blow-up did not happen.
  • Latin America finally got voiced. JPMorgan's read: the Mexican peso looks clean (light positioning, real support beyond just yield), the Brazilian real looks fragile (crowded longs, an October election), and the Colombian peso stays attractive after its central bank surprised by holding rates at 12%.
  • The Bank of Japan is the whole ballgame. MUFG expects Japanese rate hikes in September and January and sees dollar/yen drifting toward the high 140s next year; JPMorgan upgraded its BoJ call to three hikes but still pencils a weaker yen (164) by year-end. These two views are the swing factor for every carry trade on the planet.
  • Where the pros want to fund: increasingly the Swiss franc, not the yen (the yen short is now too crowded).
  • Still silent on the podcasts: the South African rand, Turkish lira, Central-European currencies, a dedicated China yuan discussion, and India's rupee. Not covered this week rather than newly bearish.

What's new

The jobs report that flipped the dollar. The single biggest development of the week was Friday's US employment report, and it was a genuine shock. On Global Research Unlocked, Bank of America's Mark Cabana and Aditya Bhave walked through it: the US economy shed 23,000 jobs in July with sizable downward revisions to prior months, wage growth cooled, and the workforce shrank. The one quirk, the unemployment rate actually fell a notch to 4.1%, was, as Bhave put it, "symptomatic of a supply shock": fewer people in the labor force (an immigration story), so lower participation, lower employment and lower unemployment all at once. He flagged that the softest part, cooling wages, "was probably the more dovish aspect of today's number than the drop in payrolls." Bank of America's takeaway: the September Fed meeting is now "just about 50-50" for a hike, with markets pricing only about 30 basis points of total hikes for the rest of the year. Short-term US bond yields fell.

Why an EM FX newsletter cares: a softer dollar and a Fed that no longer has to hike is the exact backdrop that lets EM currencies and their high local interest rates shine.

Even the pros were a little stunned by how calm it stayed. On The MUFG Global Markets Podcast, MUFG's head of EMEA research Derek Halpenny said the quiet part out loud: "I remember many years ago, a figure like this would have caused absolute carnage on the trading floor. But the front end, the two-year yield in the US, is down six, seven basis points. So the reaction, you could argue, has certainly been a bit muted." His read is that average hourly earnings falling to 3.2%, "back at pre-COVID levels," is a green light for his long-held view that "the Fed will not have to raise rates this year." He still puts the odds of a September hike at around 35%, because there are two more inflation reports and another jobs report before the decision.

JPMorgan's EM desk finally drew the Latin America map. This is the part worth slowing down for, because it's the first proper emerging-markets discussion in weeks. On At Any Rate, JPMorgan's EM team, Ben Ramsey (head of EM sovereign credit strategy), Tanya Escovedo (senior Latin America strategist) and YM Hong (head of EM corporate credit), tackled the obvious fear head-on: with the yen being rescued, are we about to get a repeat of the 2024 carry-trade unwind that hammered Latin currencies?

Escovedo's history lesson first, because it frames everything: in the third quarter of 2024, when Japan intervened and the Bank of Japan turned hawkish, "the Mexican peso and the Brazilian real lost close to 20% versus the dollar from their strongest levels to the peak of the carry unwind." Then she gave the current read, and the two big currencies split:

  • Mexican peso, cleaner, less vulnerable. "Positioning is much cleaner now than it was in 2024," she said, sitting around the middle of its five-year range, with surveys even showing investors modestly betting against the peso rather than piled in. Crucially, the peso's rally has come alongside shrinking interest-rate advantage over the US, meaning it's being held up by more than just yield: easing trade tensions, improving trade accounts, and a "quite steady" political calendar. That's a sturdier foundation than carry alone.
  • Brazilian real, fragile. "Positioning in BRL is still very long and above the 90th percentile," Escovedo warned, in plain English, almost everyone is already crowded into the same bullish bet, which is exactly what makes a currency vulnerable to a sharp reversal if the mood turns. The one comfort is that those bets are funded from a mix of currencies (dollar, euro), not concentrated in yen shorts like 2024. But layer on Brazil's October presidential election (shaping up as President Lula versus Flavio Bolsonaro, whose ticket "really struggled to attract" allies) and Escovedo sees "a relatively more fragile balance for the currency in the second half of the year."
  • Colombian peso, a quiet standout. Colombia's central bank surprised markets by holding its rate at 12% (the street expected a 50-basis-point hike) and announcing a plan to build up to $4 billion of reserves. Escovedo reads the reserve move as the bank keeping an eye on how fast its currency has climbed, but not enough to change the trend. At a 12% policy rate, she noted, the peso "still places the Colombian peso as one of the highest carry currencies in EM," and JPMorgan stays constructive on it.

The AI bond boom is quietly squeezing EM. A fascinating side-thread from the same JPMorgan episode: YM Hong pointed out that the extra yield you earn for owning higher-quality emerging-market company bonds over US ones has nearly vanished, from a historical 20-to-40-basis-point cushion down to "only about 0 to 10 basis points" this year. The culprit is the flood of AI-related debt: bonds from hyperscalers (Microsoft, Alphabet, Amazon, Meta, Oracle, and now SpaceX) and their data-center projects. That issuance has exploded "from about $20 to $30 billion per year until 2024" to "$300 billion plus year-to-date," with JPMorgan forecasting roughly $420 billion a year for the next five years. So far it hasn't pulled money out of EM, but it's a technical worth watching: the AI capital-raising machine is now big enough to move spreads in an entirely different asset class.

The debate

Both sides genuinely showed up on the podcasts this week, so here they are.

The bull case: the carry trade just passed a stress test. This is JPMorgan's Global FX team, Pat Locke, Antonin Delair and James Nelligan. Locke called Friday's jobs report "a fairly material setback to the tactical dollar upside view," which in trader-speak means: forget the strong-dollar bounce for now. And Delair made the strongest bull argument of the week by pointing at what didn't happen. Look at the beating the carry trade should have taken, he said: at one point last week the Nasdaq was down nearly 11%, oil had crashed from $100 to $80, the US and Japan had just intervened to prop up the yen, and then a weak payroll print landed on top. "This is a fairly complete toxic mix of events for something like carry. And as I said, you are down only 1%."

"In 2024, the last two weeks of July to beginning of August, you are down 7% on those same baskets. If you extend a bit the period around, you are down double digit... and all that with equities selling off at the exact same time."

Antonin Delair, JPMorgan, on At Any Rate

His scorecard: JPMorgan's inflation-adjusted carry basket is still up about 11% for the year, and its risk-adjusted version up about 7%. His verdict, "still bullish," rests on a decent global growth backdrop, equities bouncing back, and a still-wide yield gap between EM and the US. This time the yen's move was "a lot more idiosyncratic," he said, without the broad contagion that swept up all the low-yielders in 2024.

The bear case: it's crowded, and September is a landmine. The counter-argument is mostly about positioning and event risk. On InvestTalk, Luke Guerrero of KPP Financial walked through the ghost of August 2024, when a Bank of Japan hike plus a soft US jobs number triggered a positioning avalanche: "the Nikkei fell roughly 12.5% in a single session, the worst day since 1987. S&P was down three. VIX was back above 60. The positioning there was the amplifier." His warning for today: speculators are again heavily short the yen, and if the Bank of Japan signals a hike in September, "do we get a repeat of 2024? Maybe yes, maybe no. But either way, you need to be prepared for it."

Even the bulls conceded the soft spot. Delair flagged that with yen and dollar funding both limited, the real question is how much of the carry trade is now funded by selling euros and Swiss francs, a concentration risk "to watch." And Escovedo's own warning on the crowded Brazilian real is the bear case in one currency. Put simply: the carry trade survived this shock, but it's leaning on a smaller, more crowded set of funding currencies and heading into two calendar landmines: a possible Bank of Japan hike and Brazil's election.

The trades in play

The episodes were unusually specific this week about how to express the view.

  • Fund in Swiss francs, not yen. JPMorgan's James Nelligan said his highest-conviction idea is using the Swiss franc as the borrow-and-sell currency, precisely because "as yen intervention becomes more and more of an issue, you can potentially see some of that funding positioning migrate over to Swiss." He'd play it against higher-yielding cyclical currencies and wouldn't be surprised to see the euro climb toward 94 Swiss centimes (EUR/CHF).
  • Own the peso, respect the real. JPMorgan's split, Mexican peso the cleaner long, Brazilian real the one to trim or hedge into the October election, is the clearest EM currency call of the week. Colombia's peso stays a favored carry holding at a 12% policy rate.
  • Don't hedge a carry unwind by shorting the yen, it's too crowded. Guerrero's practical advice was contrarian and worth repeating: "the hedge isn't shorting the yen here. That's a crowded trade. The hedge is owning things that don't need the carry trade to function, your cash-generating businesses, your shorter-duration credit, some actual cash."
  • Norway's krone is "very difficult to short." Nelligan called it an energy-linked currency with high carry that stays well-supported while Middle East risk lingers. He stayed bearish the Swedish krona (another funder) and, separately, JPMorgan is still not ready to turn bullish on the Canadian dollar, which has been the weakest major currency since the new US "338" tariffs.
  • The next data point that matters: next week's US inflation report, then the run into the Bank of Japan's September meeting. Halpenny at MUFG was blunt that Japan "need[s] to show intent by hiking in September" for the yen story to turn.

Read-throughs

  • The dollar itself: watch the euro, not the headline dollar index, for the real signal, and this week the softer dollar is the tailwind under everything EM.
  • EM local-currency bonds and the EMB-type funds: JPMorgan noted EM government bonds bounced back strongly last week after lagging in July, when a steeper US yield curve hurt their longer-dated debt; Brazil was a specific drag. The vanishing yield premium of EM company bonds over US ones (now near zero) is the quieter read-through, thank the AI bond deluge.
  • Country equity funds: the JPMorgan framework reads straight across, a cleaner setup for Mexico (EWW) than for Brazil (EWZ), where October election risk builds. Colombia's high-carry, on-hold central bank is a supportive backdrop.
  • Commodities as the risk-on tell: on CNBC's Fast Money, Tim Seymour and the desk flagged the week's metals rip: gold up about 7%, silver up roughly 10%, copper hitting a fresh record, and the gold miners' ETF (GDX) up 21% for its best week since 2008. Copper at record highs is the classic "global growth is fine" signal that keeps commodity-linked EM currencies (and China proxies) bid. Oil dropping from $100 toward $80 on Middle East de-escalation is a double gift, it helps energy-importing EMs and cools the inflation that would force the Fed's hand.
  • The Bank of Japan is the master switch. MUFG sees dollar/yen sliding toward the high 140s next year if Japan hikes in September and January and the Fed stays put, the scenario that keeps the carry funding leg orderly. JPMorgan, notably, still expects a weaker yen (a 164 year-end target) on the view that intervention doesn't fix Japan's underlying problems: huge overseas investment outflows (25 trillion yen last year) and an economy that hasn't pivoted. That disagreement is the single biggest unresolved question for EM carry.

What changed

  • Last week's cliffhanger got answered. The open question was whether the dollar would hold soft or bounce on strong US data or a Fed hike. It held soft: the jobs report was weak, the Fed no longer looks forced to move in September, and the EM-carry tailwind survived.
  • The 2024-repeat fear faded. A week ago the worry was that the US-Japan yen rescue would trigger a 2024-style carry-trade avalanche. It didn't. JPMorgan's baskets fell ~1% versus 7%-plus in the equivalent 2024 window, and the pain stayed contained to the yen rather than spilling across all low-yielders.
  • The Bank of Japan question sharpened from "if" to "when and how much." MUFG now forecasts September and January hikes; JPMorgan upgraded to three hikes next year (while sticking to a weaker-yen target). September is the tell.
  • Latin America came back onto the radar after weeks of silence, with a real, tradeable framework: peso clean, real fragile, Colombia attractive.
  • Still quiet on the podcasts: the South African rand, Turkish lira, the Central-European currencies (Polish zloty, Hungarian forint, Czech koruna), a dedicated China yuan / PBoC discussion, India's rupee, and Korea's won (mentioned only in passing, as "policymakers panicking" last week). No new dedicated coverage this week, worth flagging if any of them resurface.