Emerging Currencies Rise to Record High as Fed Hike Bets Ease

Emerging-market currencies reached a record high on August 17 as expectations for a Federal Reserve interest rate hike diminished, sparking demand for risk assets. A gauge tracking these currencies surged as much as 0.2%, reaching an all-time high of 1,906.98, while a similar gauge for equities climbed by 0.6%. The gains were buoyed by a weaker dollar, as weaker-than-expected US retail sales reduced the likelihood of the Fed tightening monetary policy.

"Emerging-market (EM) currencies are supported today, primarily driven by a softer dollar and continued risk recovery in equities," stated Wee Khoon Chong, a senior Asia Pacific market strategist at BNY. "Asian currencies appear to be benefiting from the tailwinds of softer US data last week and the softer USD tone this week," added Galvin Chia, an emerging Asia strategist at Societe Generale.

The Bloomberg Dollar Spot Index fell 0.2% on August 17, marking a third consecutive day of losses. The index now reflects a 25-basis-point Fed rate hike by January 2027, a shift from earlier market expectations that the move would occur by year-end.