JPMorgan argues the currency debasement trade should be expressed as long-dollar positions against low-yield cyclical currencies such as the Swedish krona, New Zealand dollar and Canadian dollar, rather than outright dollar shorts, citing near-2 percent US real policy rates and a yield advantage at roughly 40-year highs.
The "currency debasement" trade that has funneled money into gold and commodities for years does not translate into a blanket short on the US dollar, according to JPMorgan Chase & Co., which argues the greenback's near-2 percent real policy rate and a yield advantage at roughly 40-year highs make low-yield cyclical currencies the better short.
"Hard assets benefit from a decline in purchasing power, but that does not mean the dollar must fall in tandem," JPMorgan strategists wrote in a note dated this month. The bank estimates the dollar trades 3 percent to 4 percent below fair value, giving it a valuation cushion that complicates outright shorts while its real rate advantage persists.
The bank's framework rests on three pillars. US real policy rates sit near 2 percent, with the dollar's yield advantage over global currencies at the widest in about four decades — the greenback now yields more than half of the world's currencies, a level last seen 25 years ago. Second, inflation is not a US-specific problem: synchronized tightening by global central banks removes the condition under which the dollar would weaken persistently. Third, the dollar's modest undervaluation limits downside even if the debasement narrative extends.
JPMorgan draws on the "dollar smile" theory to argue that as long as global growth holds up and US yields stay above other economies, the dollar can remain firm in the middle scenario of the smile curve, where growth is steady rather than collapsing.
The more precise expression of the debasement trade, the bank argues, is a relative-value one: buy dollars against currencies with low real yields that are also highly sensitive to the economic cycle. JPMorgan flags the Swedish krona, the New Zealand dollar and the Canadian dollar as the most vulnerable. Even the Canadian dollar's commodity exposure is not enough to offset its cyclical sensitivity and comparatively weak carry, the note said.
Japan's currency is the main exception to the long-dollar framework. A potential rebalancing of the Government Pension Investment Fund's portfolio could bring sizable yen buying, while the Bank of Japan's accelerating policy normalization adds to the currency's tactical appeal.
JPMorgan keeps a base case of 155 to 165 for dollar-yen, however, arguing that a sustained break lower would require a clear deterioration in the US economy or explicit intervention by US authorities to push the dollar down. The yen has already appreciated rapidly, leaving dollar-yen in deeply oversold territory and much of the bullish positioning priced in, the bank said.
The last time the yen strengthened this quickly against the dollar, in mid-2024, the move stalled near 150 before reversing as the Bank of Japan paused its tightening cycle and US data stayed resilient — a pattern JPMorgan suggests could repeat absent a policy catalyst.
The note closes by cautioning investors against equating debasement with dollar collapse. Gold and commodities can keep rising on purchasing-power erosion even without a weaker dollar, while the greenback itself draws support from high real yields, wide carry differentials and a valuation that is not stretched. For investors positioned for inflation and monetary erosion, the trade is long the dollar against the kroner, kiwi and loonie — not short the dollar outright.
