Emerging Market Currencies See Increased Interest
LONDON, Dec 15 – The Hungarian forint, often viewed as a niche currency, has seen a remarkable surge in trading volume, which has more than doubled since the inauguration of U.S. President Donald Trump in January. This increase has been particularly evident following Trump’s announcement of extensive import tariffs dubbed “Emancipation Day.”
Market participants, including traders and hedge funds that navigate the vast $10 trillion daily global currency market, assert that this uptick is not just a fleeting trend.
This year, the forint has gained approximately 20% against the dollar, marking its strongest performance in nearly 25 years, making it one of the standout currencies in the emerging market sphere for 2025. The MSCI Emerging Market Currency Index has also experienced growth, reaching record highs in July with over a 6% increase, putting it on track for its best year since 2017.
Many experts believe that this favorable trend will persist into the next year. The boost in market activity can be attributed to heightened volatility and a weakening dollar, encouraging investors to rethink their exposure to U.S. assets in favor of promising currencies from nations like South Africa and Hungary.
According to Johnny Goulden, head of emerging fixed income strategy research at JPMorgan, we might be witnessing a shift from a prolonged bear market in emerging currencies. He suggests this development is linked to broader changes in dollar market dynamics, where many investors hold substantial U.S. assets while steering clear of emerging markets.
Concerns from the IMF
Elina Teodorakopoulou, a debt portfolio manager at Manulife Life, pointed out that unexpected price shifts this year stemmed from developed nations’ events rather than emerging markets, which remained relatively stable.
The International Monetary Fund has issued warnings regarding potential vulnerabilities within the currency marketplace. They highlighted that around half of the world’s foreign exchange transactions are conducted by a handful of major banks, indicating risks if these institutions decrease their activity during tumultuous times.
Additionally, the Bank for International Settlements reported a nearly 30% rise in currency volume over the last three years.
The year 2025 has experienced significant fluctuations in currency values, seeing market volatility rise sharply. However, recent stability has created fertile ground for carry trades, which involve borrowing in lower-yield currencies and investing in those offering higher returns.
Notably, EDL Capital, a hedge fund managing $1 billion, saw a 28% increase in value this year, particularly benefiting from positions taken against the dollar. Such trends have been advantageous for banks, which have reported record earnings from emerging market currency trading.
Emerging market transactions generated close to $40 billion in revenue for the top 25 global banks within the first nine months of this year—an unprecedented high. This figure more than doubles the $19 billion from the G10 currencies, which include major currencies like the dollar, euro, and pound.
Sameer Oweida from Morgan Stanley mentioned that finding profitable opportunities in currency trading, especially among G10 nations, has become increasingly difficult. He observed that investors in the markets are shifting their focus to higher yield opportunities available in emerging economies.
A little over half of the traders and analysts surveyed anticipate this rise in interest for emerging market currencies to be a prevailing trend into 2026.
Mixed Outcome for Emerging Markets
Despite the generally positive trend, not all currencies have benefited from the dollar’s decline; for instance, the Indian rupee has hit record lows due to weak trade and investment flows. Political instability and concerns regarding central bank independence have similarly affected the Indonesian rupiah.
Analysts have noted that even though the dollar has stabilized after its sharpest decline since the 1970s—plummeting roughly 11%—predictions for further interest rate cuts by the Federal Reserve might result in additional weakening of the dollar.
This overall backdrop is pivotal for many emerging market currencies, as it continues to attract capital inflows. Rising carry trades are also noted as gaining traction.
The Mexican peso and Brazilian real have emerged as strong contenders among the best-performing currencies this year, attributed to robust central banks and appealing interest rates, with Brazil reaching a 20-year high of 15%.
According to Nicholas Skroudis, a portfolio manager at Amir Capital, there’s been considerable inflow into a range of emerging markets, both domestically and through international bond markets, indicating that the trend is unlikely to reverse soon.
