Emerging Market Currencies Fall to 2024 Lows After Iran Attacks Israel

(Bloomberg) - Emerging-market currencies fell to fresh yearly lows as the dollar extended gains for a fifth straight day on heightened geopolitical tensions and strong U.S. data that pushed up bets that the Federal Reserve will postpone a rate cut.

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The MSCI EM Currency Index fell 0.2% on Tuesday to a new low since December. China's move to weaken the renminbi's daily quota rate after continued pressure on the dollar gave the greenback an extra boost in Tuesday's morning rock trading.

After Iran's attack on Israel pushed the conflict between the two countries to a dangerous new level, the safe-haven market demand for the dollar also increased.

China Eases Control of RMB by Weakening Rock Prices as Dollar Gets Stronger

"Unwelcome factors such as geopolitics, high long-term interest rates and the volatility of the renminbi and the yen are likely to continue to undermine sentiment for Asian currencies other than Japan," said Resonance Christopher Wong, currency strategist at Oversea-Chinese Banking Corp. in Singapore. The unpopular factors of geopolitics, high long-term interest rates and the volatility of the renminbi and the yen are likely to continue to undermine sentiment in Asian currencies except Japan.

Stronger-than-expected U.S. economic data dampened bets on a Fed rate cut, suggesting that the battle against a strong dollar is not likely to end soon. This has led to an increase in currency intervention in emerging markets, particularly in Asia, as a stronger dollar puts pressure on officials to take action.

Meanwhile, any weakness in China's Koon's currency would have a huge impact, as it is used as an anchor for other countries in the region. The most affected are the currencies of neighboring Asian countries such as Korea and Thailand, where China is the number one trading partner, but a sudden weakening of the renminbi could have a wider impact.

The MSCI Emerging Markets Index has fallen 1.8% this year.

-Written with the help of Matthew Burgess.

(Updated)

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