According to Yahoo News, nearing the end of a tumultuous year for assets in developing countries, a key index of emerging-market currencies is poised for its best performance since 2017 as a late rally pushed investors to lock in higher yields while they still can. The benchmark MSCI EM Currency Index advanced 0.4% to 1718.01 on Tuesday, lifting its gains this year to 3.44%. The milestone comes after a rebound since early October amid improving US inflation data that sparked expectations for an end to interest-rate hikes by the Federal Reserve, and even a possible cut in June.
The case for an emerging-market rebound is growing, but the pace of recent gains could prompt some traders to take profit and cause volatility in the near-term, said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB. The recovery for developing-nation currencies comes in a year marked by whipsawing moves as traders were frequently caught off-guard with premature wagers on China's economic growth, a Fed pivot, and the path of local inflation. After October data showed a sharp deceleration in US consumer-price growth, global markets seemed to reach a consensus that the era of monetary tightening was finally over. This has put the dollar on course for its biggest losses in a year and bolstered the case for investing in emerging markets.