Emerging-market currencies cap best streak since 2024

Emerging-market currencies experienced their best streak of gains since 2024, riding the wave of a shift in U.S. interest-rate outlook and bullish sentiment surrounding artificial intelligence. The MSCI gauge of EM equities rose 0.3% on Friday, marking a weekly advance of 2.6%, the largest since mid-June. Most of the movement occurred during the Asia session, while Latin American stocks had milder gains, and U.S. stocks fell amid concerns about slowing growth.

An index tracking developing-world currencies climbed 0.2% to a new record, achieving its seventh straight weekly advance since September 2024. Among the top performers were the Romanian leu, Taiwan dollar, Hungarian forint, and Polish zloty, with the won notching its first gain in three days due to foreign inflows and a rally in South Korean stocks.

The Brazilian real, however, was an outlier, falling more than 1% against the dollar amid election risk concerns ahead of October's presidential vote. The real has lost over 3% against the dollar in August, while Brazilian equities have seen foreign outflows. The currency's decline has since stabilized, ending around 0.6% lower.

Investors' reduced expectations of U.S. tightening prompted renewed bets on the AI trade, which has propelled equities to record highs this year, while also boosting market volatility. South Korea's Kospi index, dominated by tech companies, led gains once again, with Samsung and SK Hynix among the leaders. In credit markets, Ecuador bonds saw a significant gain after receiving an upgrade from S&P Global Ratings, while Indonesian bonds also outperformed.

Despite these positive developments, the situation in the Middle East remained a concern as the U.S. issued warnings of new economic measures against Iran, adding to the complexity of prospects for a peace deal.