Newsletter · 2026-09-15 · Ashutosh Agarwal

J.P. Morgan Ranks Which EM Currencies Survive the Fed Hike - EM FX Weekly - Week of September 15, 2026

EM FX Weekly for the week of September 15, 2026: with a Fed hike now 92 percent priced, J.P. Morgan's EM FX strategist ranked the currencies that can withstand it (Turkish lira, Colombian peso, Brazilian real, Mexican peso, Hungarian forint) and the two most exposed (Chilean peso, Israeli shekel), as the US bond market revolted, the yen firmed ahead of a Bank of Japan hike, and the dollar still refused to rally.

EM FX Weekly

Week of September 15, 2026: J.P. Morgan Ranks Which EM Currencies Survive the Fed Hike

Last week the question was whether the Fed would hike at all. This week that question quietly died. After a hot inflation report on Friday, the market now puts the odds of a rate rise on Wednesday at 92%, and the conversation has jumped straight past "will they" to something far more useful for anyone running emerging-market money: if the Fed hikes, and the Bank of Japan hikes the day after, which of the fat-yielding EM currencies actually keep working, and which get quietly cleaned out?

For once, we got a straight answer. J.P. Morgan's emerging-markets FX strategist sat down and ranked them by name (the survivors and the casualties) on one of the clearest EM-specific podcasts we've heard all year. That's the spine of this issue.

But there's a bigger, stranger backdrop that everyone kept circling back to. Two of the world's biggest central banks are about to raise rates in the same 48 hours, the US bond market is in open revolt with the 10-year yield pushing toward 5%, US government debt just crossed $40 trillion, and through all of it, the dollar simply refuses to rally. That refusal is the single most important thing keeping the EM carry trade alive. Here's the week.

(Quick definitions, because we'll lean on them: the carry trade means borrowing in a cheap, low-yielding currency and parking the money in a high-yielding one to pocket the interest-rate gap. The dollar (DXY) is a standard gauge of the greenback against a basket of big rich-world currencies. A basis point is one-hundredth of a percentage point.)

TL;DR

The Fed hike is now all but locked, 92% priced. After a hotter-than-expected August inflation print, JPMorgan Asset Management's David Kelly says (Notes on the Week Ahead, Sep 14) Fed funds futures moved to a 92% chance of a hike this Wednesday, with another fully priced by year-end and a third by March 2027. The debate is no longer whether, but who gets hurt.
J.P. Morgan named the EM survivors and the casualties. On J.P. Morgan's own podcast, EM FX strategist Aneshka Kristovova ranked the currencies best able to shrug off a Fed hike (the highest-yielders, where the interest you earn cushions the blow): the Turkish lira ("should see absolutely no move"), the Colombian peso and the Brazilian real, plus the Mexican peso (light positioning, strong fundamentals) and the Hungarian forint (its central bank is finally defending it). The two she flagged as vulnerable: the Chilean peso and the Israeli shekel.
EM held the line again, and the numbers are genuinely striking. Despite rising US yields, $100+ oil and a hawkish Fed, J.P. Morgan's local-currency EM bond index is in positive territory on the year: the currency gains alone have been big enough to offset the bond sell-off. Kristovova admits the resilience has "surprised a bit to the upside."
The bond market is revolting, and that's the real threat to carry. The US 10-year yield topped 4.8% (its highest since October 2023) and the 30-year is back above 5.25%, per FT columnist Katie Martin, as US debt crossed $40 trillion. Former Nomura strategist Jens Nordvig had the line of the week: big tech's "hyperscaler" build-out is now issuing about as much long-dated debt as the entire US Treasury.
The yen keeps rising, and the funding leg keeps getting more expensive. The Bank of Japan is expected to raise rates again this week (to 1.25%), the yen has firmed from about 163 to 153, and J.P. Morgan's chief Japan FX strategist is now tactically long the yen. A rising yen makes the cheap fuel behind the carry trade pricier.
China quietly entered the frame. Two podcasts argued Washington's yen intervention is partly a setup for the coming Xi-Trump summit, to pressure Beijing into letting the yuan strengthen. One estimate put the yuan as much as 35% undervalued.

What's new

The one that matters most for an EM book: J.P. Morgan names names.

For weeks, the emerging-market currencies only showed up second-hand, in cross-market strategists talking about something else. This week we got the real thing. On J.P. Morgan's At Any Rate, "Global FX: Post-CPI and pre-Fed FX round up" (Sep 11), FX co-head Meera Chandran handed the microphone to EM FX strategist Aneshka Kristovova with one question: which currencies can actually withstand a Fed hiking cycle?

Her answer, ranked by how much interest income (carry) cushions the blow:

The high-carry survivors. "On the immediate reaction," Kristovova said, "Lira, for instance, should see absolutely no move. Colombian peso, Brazilian real: these are the usual kind of high-carry candidates." When you're being paid double-digit yields to hold a currency, a single Fed hike barely dents the trade.
The Mexican peso, resilient for a different reason. "Mexico does not have very high carry, but we also see that the positioning continues to be quite low and the kind of fundamental balance-of-payments support quite high." (Balance of payments is simply a country's overall money-in versus money-out with the rest of the world; Mexico's looks solid.) In plain terms: nobody's over-crowded into the peso, and the underlying economics are sound, so there's little to unwind in a shock.
The Hungarian forint, a fresh twist for Central Europe. Kristovova flagged that Hungary's central bank is "finally seeing signs that the central bank is a bit more concerned about the FX behavior," with a reaction function kicking in on days the forint moved too much with natural-gas prices. A central bank willing to defend the currency is a currency worth holding.
The casualties. "Two currencies clearly for me stand out... as having recently shown more sensitivity to the US rates repricing, and that is Shekel and Chilean Peso." These are the lower-yielders (less interest income to protect them), so if US yields grind higher, they crack first. Her honest caveat: because so much is already priced for the Fed, those same two could snap back hardest if the Fed disappoints on the hawkish side.

And the resilience number that frames the whole trade: J.P. Morgan's main local-markets index (the GBI-EM) is positive on the year because currency gains have been "sufficient enough to make the overall index in positive numbers, despite the bond sell-offs." Kristovova, a self-described bull, still said she's "a little bit surprised by the resilience," given that every driver she watches (US real yields, oil) has been working against EM since July.

The dollar that won't rally, the tell of the week.

Here's the puzzle that had even the dollar bulls scratching their heads. On the same J.P. Morgan podcast, Chandran laid it out: "We've had the hot payrolls print and then we've had the hot CPI print today. We've got energy prices at the highs and the dollar just won't strengthen." Her colleague Patrick Locke walked through the inflation detail: core prices beat by a tick, and "supercore came in hot at like 51 basis points, that was the hottest since January." (Supercore is services inflation stripped of housing, the Fed's favorite gauge of the stubborn, hard-to-kill kind of price pressure.) A near-certain Fed hike, hot inflation, $100 oil: every one of those should lift the dollar. It hasn't.

That refusal is the quiet engine under the whole EM carry trade. A soft, non-rallying dollar is exactly the backdrop in which high-yield EM currencies keep paying off. The Real Vision Macro Mondays panel (Sep 14) made the same observation and drew the more aggressive conclusion. As Christoph Andres put it, the market has now priced four more rate hikes from the European Central Bank and five from the Bank of England through the end of next year, but "the US is still lacking," so "expect the Fed to be a lot less aggressive than other central banks," which "backs up the weak dollar thesis." The panel is sticking with a "short dollar lean," precisely because the dollar has "underperformed a lot versus everything that's been happening."

The bond market revolt, the biggest threat to the party.

If there was one theme every podcast kept returning to, it was the US bond market coming apart at the seams. On Prof G Markets, "Why The Bond Market Is Starting To Revolt" (Sep 11), Financial Times columnist Katie Martin summed up the diagnosis bluntly: "governments are just borrowing too much damn money," with US national debt crossing $40 trillion for the first time and "a whole bunch of countries, including the US, that are now spending more money on keeping current with their debts than they are on defence."

Her more interesting point was why it suddenly matters now, after years of heavy borrowing that nobody blinked at. She traced it to Washington's own recent intervention to prop up the yen: "the reason that the market settled on was, hang on, you just don't want Japan to sell down its US government bond holdings to support its currency. You're telling us that you're worried about people selling treasuries. And now I'm worried about people selling treasuries." In other words, the US government's own nervousness about its borrowing costs became the thing that spooked everyone else.

The most memorable framing came from The Compound and Friends (Sep 11), where Jens Nordvig (the former Nomura head of research who was ranked the number-one currency strategist by Institutional Investor for five straight years) explained where the new pressure on long-term rates is coming from:

We now have as much bond issuance by hyperscalers in the long end of the curve as the United States government... a few private sector companies that together are managing to issue as much debt in the long end of the curve as the US government.

The tech giants building out AI (Nordvig named Google, Microsoft, Amazon and Meta) are borrowing so heavily that they're now competing head-on with Uncle Sam for the same pool of capital, and he expects next year's issuance to be "dramatically more than this year." His conclusion for currencies is a clean read-through for EM: money is starting to reward countries with low debt and punish those with high debt. "Switzerland, Singapore... Australia is a country that actually doesn't have a lot of debt. If you have long exposure to those, you've done very well." And the kicker: rank the top 30 economies by debt metrics, and "guess who has the worst... It's actually the United States now," worse than Japan.

The yen keeps grinding higher, and the funding leg keeps getting pricier.

The reason a yen story keeps leading an EM newsletter: the yen is the cheapest fuel in the carry tank. When it's near-free to borrow and only ever weakens, you can fund a high-yield peso or real position almost for nothing. A rising yen makes that whole trade more expensive to hold.

And the yen keeps rising. On J.P. Morgan's At Any Rate, "BOJ Preview: Global Market Implications" (Sep 14), chief Japan economist Ayako Fujita said the Bank of Japan is "highly likely delivering another 20 basis point rate hike, taking the policy rate to 1.25%" this week, and expects it to reach 2.25% by the end of 2027, possibly with more to come in 2028. Chief Japan FX strategist Junya Tanase made the point that matters for carry: the old relationship has flipped, and rising rate-hike expectations now push the yen up rather than down. He's tactically bullish the yen and has held a long-yen position (expressed against Sweden's krona) since late August. On RiskReversal (Sep 14), Danny Moses noted the yen has already firmed from around 163 to 153, and put his finger on why Washington cares so much: it "really comes down to one thing, and that is our US Treasury market... our ability to keep yields down because we have so much to issue."

China slips into the conversation.

We got the first real EM-Asia thread in a while, and it's about pressure, not price action. On Bloomberg Talks, "Adam Posen Talks 'Credible' Dollar Threat" (Sep 9), the Peterson Institute's Adam Posen argued that the US Treasury's yen intervention is partly choreography ahead of the coming Xi-Trump summit: "it's an attempt to set things up ahead of the Xi Trump summit so they can ask China to do some things to strengthen its currency because they're saying, well, look, the yen is moving up, the Korean won is moving up." He called Washington's ability to weaken the dollar "a credible threat" ("it's always easy for a finance minister or Treasury secretary to weaken a currency") while calling the strategy short-sighted.

The deeper backdrop came from Top Traders Unplugged (Sep 9), where economist Matt Klein (formerly of FT Alphaville) laid out the numbers behind the tension: China's trade surplus has ballooned "from something on the order of 100 billion to $200 billion a year on the eve of the pandemic to over a trillion dollars a year now." He reckons a "very reasonable estimate" is that the yuan "is undervalued on the order of 35%," and that "China clearly has been intervening in its currency in a particular way to make it cheaper than it otherwise would be." But he was clear a 1985-style Plaza Accord to force the yuan up is "a non-starter": Beijing views that episode as a trick the US played to cripple Japan, so the more likely path is Europe reaching for tariffs. Worth watching ahead of the summit, even if the day-to-day yuan and the PBoC's daily fix stayed off the podcasts this week.

The debate

This was a genuinely two-sided week, and the fault line runs right down the middle of the carry trade.

The bull case (carry survives, the shields are holding). J.P. Morgan's EM desk is the standard-bearer. The dollar won't rally even with hot inflation, $100+ oil and a 92%-priced hike; EM currencies are up on the year in total-return terms; positioning is light outside a handful of high-yielders; and, the subtle point, the global jump in yields is synchronized, because growth and inflation are firming everywhere at once, so no single EM currency is left as the obvious loser. Carry is still being paid, and it's still being clipped. The Real Vision panel adds the macro overlay: with the Fed set to hike less than the ECB and the Bank of England, the dollar should stay soft, and they're happy to run a short-dollar lean. Even David Kelly's hawkish call ends dollar-bearish: after this week's hike, he expects growth and inflation to cool into 2027, allowing "a resumption of a longer-term dollar decline."

The bear case (the funding squeeze plus a bond revolt cleans it out). The cheapest leg of the trade is turning: the Bank of Japan is hiking to 1.25%, the yen has run from 163 to 153, and J.P. Morgan's own Japan strategist is now long the yen, so the near-free funding is disappearing. Sitting on top of that is a US bond market in revolt: the 10-year pushing toward 5%, the 30-year above 5.25%, $40 trillion of debt, and a brand-new source of pressure in the hyperscalers now borrowing as much as the Treasury itself. Add a Fed hiking into the midterms and $104 oil keeping the inflation tax on, and you have the classic cocktail that flushes a one-way trade. Kristovova named the first dominoes herself: if US yields keep repricing higher, the low-yielders (the Chilean peso and Israeli shekel) go first, and a washout there can sour sentiment on the whole basket.

The honest read: both camps now point at the same 48 hours: the Fed on Wednesday (Sep 16) and the Bank of Japan the day after. A hawkish-but-priced Fed plus an orderly BOJ hike hands it to the bulls: the dollar stays soft, the yen squeeze stays controlled, and carry keeps running. A disorderly move in bonds (the 10-year breaking 5% and dragging the dollar and risk appetite with it) hands it to the bears. As the Real Vision panel noted, the whole market is leaning the same way (long dollar, short bonds, long energy), which means the real danger is a surprise that wrong-foots everyone at once.

The trades in play

This was not a conceptual week; the desks named their expressions:

Own the high-carry survivors. J.P. Morgan's clearest actionable read: hold the currencies whose yield protects them into a Fed hike, namely the Turkish lira, Colombian peso and Brazilian real for raw carry, and the Mexican peso for its light positioning and strong balance of payments. These are the names Kristovova expects to "see absolutely no move" on the hike itself.
Trim the vulnerable low-yielders. Into a hawkish Fed, the Chilean peso and Israeli shekel are the ones to lighten; they've shown the most sensitivity to rising US yields. (The mirror-image trade, for the brave: if the Fed under-delivers on hawkishness, those same two could bounce hardest.)
Play Central Europe through the forint. The Hungarian forint is the CE3 pick this week, precisely because its central bank has started defending it against gas-price-driven weakness.
Buy the yen, but fund it with a low-yielder, not the dollar. J.P. Morgan's Tanase is long the yen expressed against the Swedish krona, a way to own the funding-squeeze move while sidestepping the messy US rate picture. The same podcast flagged the Canadian dollar as a funder against Latin America (e.g. versus the Mexican peso) as an interesting cross.
Run a broad short-dollar lean as the overlay (Real Vision), and if you want the debt-quality trade Nordvig is pointing at, the low-debt currencies (Swiss franc, Singapore dollar, Australian dollar) have been the winners.
The two dates, not two levels, decide it: the FOMC on Wednesday (Sep 16) and the Bank of Japan the following day.

Read-throughs

Broad dollar: soft under the surface, despite everything. The tell of the week: hot CPI, $104 oil, 92% hike odds, and the dollar still won't rally. Both J.P. Morgan (frustrated dollar bulls) and Real Vision (committed dollar bears) agree on the fact even as they disagree on what comes next. That soft-dollar floor is the tailwind EM carry runs on.
EM local debt (EMB / GBI-EM). The standout: currency gains have been big enough to push J.P. Morgan's local-bond index positive on the year despite the global bond sell-off. But with the US 10-year grinding toward 5%, higher core US yields keep nibbling at the relative appeal of EM local debt even when the headline carry looks juicy.
LatAm: the split screen. The Mexican peso screens resilient (light positioning, strong balance of payments); the Brazilian real and Colombian peso are the high-carry survivors; the Chilean peso is the region's soft spot as the low-yielder most exposed to rising US rates.
Central Europe (CE3) and the euro. The forint is the one to own where the central bank is now leaning against weakness. The euro itself remains a low-yielder that J.P. Morgan prefers to use as a funding currency, with four more ECB hikes now priced through end-2027 (Real Vision), a rates story as much as an FX one.
AUD as the China/commodity proxy. J.P. Morgan's economists have penciled in another RBA hike, taking the Aussie's yield toward 4.6%, keeping it a favored carry expression; Nordvig separately likes it as a low-debt currency. A firm Aussie is a quiet vote of confidence in the reflation trade that usually travels with EM risk appetite.
China / the yuan. Not a price story this week but a pressure story: watch the Xi-Trump summit for any move to let the yuan strengthen (Posen), and watch Europe for tariffs if the currency route stalls (Klein). A stronger, managed yuan would be a tailwind for the whole EM-Asia complex.
Oil: the inflation tax that keeps the hawks in charge. WTI crude at $104 (versus $84 when the Fed last met in late July), with JPMorgan's David Kelly now seeing headline inflation as high as 3.5% by December, and Danny Moses relaying small-business owners describing transport and input costs hitting "like a tsunami." Energy is the single cleanest reason the Fed hike firmed up, and the reason every EM central bank's job just got harder.

What changed

Plenty genuinely moved from last week, and all of it cuts at the carry trade:

The Fed hike went from a bet to a near-certainty. Last week the odds were around 70%; this week, after the hot inflation print, David Kelly puts them at 92%, with the 10-year yield up from 4.67% to 4.96% in the six weeks since the last Fed meeting. The debate flipped from "will they hike" to "who survives the hike."
EM finally got a granular, single-name ranking. Last week's EM story was thematic: the basket is holding. This week J.P. Morgan's EM desk put actual names on the survivors (lira, Colombian peso, Brazilian real, Mexican peso, forint) and the casualties (Chilean peso, shekel). That's a far more tradeable map.
The bond revolt became THE story. Rising yields were a background worry last week; this week they were the headline, with the 30-year above 5.25%, $40 trillion of debt in focus, and Nordvig's striking point that AI hyperscalers are now issuing as much long-dated debt as the US Treasury.
The yen story matured. From "155 just broke" to "the BOJ hikes to 1.25% this week," with the yen already at 153 and J.P. Morgan's Japan strategist now positioned long. The cheap-funding era isn't wobbling; it's turning.
China entered the frame. After weeks of silence on EM Asia, two podcasts put the yuan back on the radar, as the real target of Washington's yen maneuvering ahead of the Xi-Trump summit.

The trade that runs on cheap funding and a soft dollar spent another week getting its cheapest fuel taken away and, once again, kept running anyway. Whether it still can may be settled in a single 48-hour window that opens on Wednesday.