Emerging Market Currencies Struggle Amidst Dollar Surge

Emerging market currencies faced declines against a strong dollar as the focus shifted to the 2025 economic outlook. South Korea's political turmoil exacerbated market volatility. Central banks in India, Brazil, and Turkey took measures to stabilize their currencies amidst uncertainties about responding to U.S. Federal Reserve moves.

Emerging market currencies declined against a strengthening dollar on Friday, as investors turned their attention to the economic outlook for 2025. Turmoil in South Korea added to market instability when its parliament voted to impeach acting President Han Duck-soo, causing the won to plummet to its lowest level since March 2009.

Meanwhile, MSCI's index tracking emerging market (EM) currencies fell by 0.3% at 0915 GMT, illustrating the impact of the U.S. dollar trading at two-year highs. The Russian rouble also dropped by 1% following the central bank's decision to withdraw currency support in early 2025. These developments highlight a challenging year for EM assets, further compounded by expected volatility due to the U.S. Federal Reserve's deceleration of interest rate cuts and anticipated tariffs from the Trump administration.

Efforts by several EM central banks to intervene in currency markets underline the widespread concerns. According to Ahmed Azzam of Equiti Group, the dollar's bullish trend may persist due to strong U.S. economic growth compared to other economies. Turkey's central bank surprised with a significant rate cut, while India's rupee slightly rebounded from its historical low. Mixed results were observed in European EM stock markets post-Christmas, reflecting ongoing volatility.

(With inputs from agencies.)