Emerging market currencies get relief rally from softening Trump threats

In the first week since Donald Trump returned to the White House, emerging-market currency traders are celebrating the small wins.

The absence of tariffs on Chinese imports, for now, was enough to fuel gains in developing-world currencies, leaving a benchmark index on track to climb 1.1% this week, its best performance since November 2023. Trump’s comments hinting he would rather not impose levies on China were further welcomed by investors, who hunted for hard-hit Asian currencies on Friday.

“It’s more of a relief rally,” said Alvin Tan, head of Asian FX strategy at Royal Bank of Canada in Singapore. “The market is relieved that the worst-case scenario of maximalist US tariffs that Trump had promised in his campaign appears to be falling by the wayside.”

Emerging currencies are rebounding after suffering their worst quarterly drop since September 2022 in the final months of 2024 as traders priced expectations of a widespread trade war and a more hawkish Federal Reserve amid inflationary pressure in the US. Currencies in emerging Europe and Latin America led gains this week, with the Polish zloty and Brazilian real climbing almost 3%.