Analysis-Wild currency swings put emerging markets in the spotlight

By Nell Mackenzie, Dhara Ranasinghe and Alun John

LONDON, Dec 15 (Reuters) – Trading in the Hungarian forint, long a niche emerging market currency, has more than doubled since U.S. President Donald Trump took office in January, with trader interest only growing since his sweeping “Liberation Day” import tariffs announcement.

These increased volumes are no blip either, say traders, strategists and hedge funds navigating the almost $10-trillion-a-day global FX ​markets.

The forint has strengthened roughly 20% against the dollar this year, set for its best year in almost a quarter of a century and making it one of 2025’s top emerging currency performers.

It has ‌been a good year more widely: MSCI’s Emerging Market Currency Index hit a record in July and is on course for its best year since 2017, having gained more than 6%.

Traders, fund managers and analysts spoken to by Reuters mostly expect this trend to continue next year, ‌too.

The gains come as a more volatile and weakening dollar prompts investors to rethink exposure to the currency and question long-held assumptions about the direction and standing of the greenback.

Meanwhile, they are betting on improving value across some developing countries from South Africa to Hungary as they diversify away from U.S. assets.

“We think that the cycle of what we would call a bear market for EM currencies, which has lasted for 14 years now, has likely turned,” said Jonny Goulden, head of EM Fixed Income Strategy Research at JPMorgan. “That is part of this turn in the dollar cycle, where the world owns a lot of U.S. assets and has avoided EM assets.”

TRADING RISKS DRAW IMF WARNING

For Elina Theodorakopoulou, portfolio manager for emerging markets debt ⁠at Manulife, the surprise this year was that price swings were triggered by ‌events in developed economies.

“It was the cool kid in the class this year, emerging markets, in the sense that it wasn’t the driver of volatility,” said Theodorakopoulou.

The U.S.-driven splintering of world trade, geopolitical upheaval and divergent central bank policy is expected to continue to drive price moves.

Investors, including hedge funds, are making and losing money, while for governments, appreciating currencies ‍and capital inflows have major economic implications, from reducing the appeal of exports to bolstering their ability to raise and repay debt.

The risks have not gone unnoticed. The International Monetary Fund in its latest financial stability report warned about dangers from currency markets.