Emerging Market Currencies Rise on Softer-than-Expected US Tariffs
Emerging market currencies have witnessed a surge during the first week of President Trump's second term, bolstered by a dovish rollout of US tariffs and the absence of new levies on Chinese imports.
* The benchmark index for developing-nation currencies is poised for a 1.2% weekly gain, its strongest performance since July 2023.
* Trump's comments hinting at a reluctance to impose tariffs on China boosted Asian currencies on Friday.
* Emerging currencies are recovering from their worst quarterly drop since September 2022, driven by fears of a trade war and a hawkish Federal Reserve stance.
* Emerging Europe and high-yielding Latin American currencies have led the gains, with the Hungarian forint, Brazilian real, and Colombian peso appreciating over 3% this week.
* Reduced tariff fears and waning volatility have reignited demand for carry trade, with high-yielding Latin American currencies benefiting the most.
* Emerging markets stocks reached a five-week high on optimism regarding US tariffs. The MSCI Emerging Markets Index gained 0.8% on Friday and is on track for a 1.9% weekly rise.
* Investors' initial concerns about Trump's "America First" agenda have eased as China was spared from tariff plans in his initial economic announcements.
* JPMorgan Chase & Co. anticipates further gains for currencies like the forint and South African rand.
* The Malaysian ringgit surged over 1% on Friday, marking the highest Asian gain.
* However, uncertainty over US policies remains, with HSBC Holdings Plc. indicating that 58% of fund managers in December were bearish on EM currencies.
* Despite the current reprieve, the threat of renewed trade wars could limit excessive appreciation of EM currencies.