Wells Fargo’s emerging markets strategy team said on Monday it has closed out its recommendations to short the U.S. dollar against both the Chilean peso and the Argentine peso, attributing the move to expectations of near-term dollar strength.
Alvaro Vivanco, an emerging markets strategist at Wells Fargo, said the decision followed a backup in the U.S. yield curve, with real rates - the portion of yields that reflect inflation-adjusted returns - showing signs consistent with more resilient U.S. growth. Vivanco also pointed to a rise in uncertainty around the Federal Reserve’s central scenario as a factor in the team’s shift.
The bank ended its structural long position on the Argentine peso, realizing a total return of about 10.6%. Vivanco noted that a significant reason for the positive performance on the Argentine peso had been a strong pipeline of harvest flows, and that those flows remain in place.
"Argentina has been a popular trade within a sector of investors, and we anticipate some outflows following a strong carry-driven performance," Vivanco said.
On the Chilean peso, the team closed a tactical short on USD/CLP that had been active since early March, recording a loss of roughly 1%. Following that exit, Vivanco said the group is now neutral on the Chilean peso, but retains a bias toward re-establishing long positions if exchange rate levels become more attractive and the outlook on the Fed gains clarity.
Context and positioning
The closures reflect a tactical reorientation by Wells Fargo’s emerging markets strategists in response to shifts in U.S. interest-rate dynamics and the policy outlook. The team converted its profitable structural exposure in Argentina to cash after realizing a double-digit total return, while stepping away from a short-dollar stance in Chile after a small loss on that trade.
Implications for markets
- Emerging market currency strategies that were positioned against the dollar have been adjusted in light of near-term dollar strength.
- Positions driven by carry and commodity-linked flows - such as harvest-related FX inflows into Argentina - can produce sizable returns but may also attract outflows when performance has been strong.
- Clarity on U.S. monetary policy and moves in U.S. real yields are key determinants of short-term positioning for these currency trades.
Current stance
Wells Fargo’s emerging markets team is neutral on the Chilean peso after closing its USD/CLP short. For the Argentine peso, the structural long position has been closed following a roughly 10.6% total return; the pipeline of harvest flows that supported the position was cited as still intact. The firm flagged the potential for investor outflows from Argentina after a carry-driven period of strong performance.