Emerging market currencies set to stabilize or weaken as Fed slows rate cuts

Emerging market currencies are expected to stabilize or pare some of their recent gains through the end of 2024, according to a Reuters poll. After significant losses earlier in the year, these currencies have rebounded thanks to a U.S. Federal Reserve rate cut, but further gains may be limited as the Fed signaled only gradual, smaller rate reductions moving forward. Geopolitical tensions and the appeal of the U.S. dollar as a safe haven are also influencing this outlook.

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Key currencies like the Chinese yuan, Thai baht, and Malaysian ringgit are forecast to decline between 1.2% and 2.0% over the next three months, while Turkey’s lira could weaken by 5%. China’s recent stimulus measures are designed to boost economic growth, but the yuan is still expected to lose much of its year-to-date gains. Other currencies, like the Indian rupee and South African rand, are expected to remain mostly stable.

Analysts remain cautious about emerging market currencies heading into 2025, citing potential volatility from the upcoming U.S. elections and the impact of China’s stimulus on global markets. While some currencies may see modest gains, the broader trend points to a mix of stability and slight declines as the year closes.