Emerging-market currencies surged to a record high on the first trading day of 2021 as traders brushed aside the accelerating spread of the coronavirus and ditched the U.S. dollar for riskier assets.
The MSCI index of exchange rates in the developing world climbed as much as 0.7% to 1,731.69, surpassing its previous record set in March 2018 before the U.S.-China trade war hobbled risk appetite. The greenback lost ground against almost every major currency on Monday, pushing a gauge of its strength to the lowest level in nearly three years.
Investor sentiment is improving as coronavirus vaccines are rolled out and data point to a broad-based up-tick in economic activity, underpinned by unprecedented central bank stimulus. That’s pushing investors toward the higher returns of riskier emerging-market assets while undermining the case for the U.S. dollar, the haven currency of choice.
“Uncertainty is diminishing and the strong global growth recovery should favor the rest of the world,” said Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management, which is underweight the dollar. The currency’s weakness is likely to be most notable “against the emerging markets foreign-exchange , which should have cyclical upside and is still relatively cheap.”
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