Trading in the Hungarian forint, a currency typically seen as niche in emerging markets, has experienced a remarkable surge since U.S. President Donald Trump’s inauguration in January. This uptick in activity has continued to grow, especially following Trump’s recent announcement of sweeping import tariffs, referred to as “Liberation Day” by his administration.
Forex traders, strategists, and hedge funds navigating the vast $10 trillion-a-day global currency markets report that the surge in trading volumes is not merely temporary. Over the past year, the forint has strengthened approximately 20% against the U.S. dollar, positioning it for its best performance in nearly 25 years, thereby making it a standout among emerging currencies for 2025.
The broader market has also seen positive trends, with the MSCI Emerging Market Currency Index achieving record highs in July, marking its strongest year since 2017, having risen over 6%. Many within the trading community expect this trend to persist into the next year. This comes amid a backdrop of a more volatile and weakening dollar that has led investors to reconsider their exposure to U.S. assets in favor of emerging markets such as Hungary and South Africa.
Jonny Goulden, head of Emerging Market Fixed Income Strategy Research at JPMorgan, suggested that the long-term bearish trend in emerging market currencies, which has endured for 14 years, may have shifted. “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,” he noted.
Portfolio manager Elina Theodorakopoulou at Manulife highlighted that the volatility of emerging market currencies has recently been influenced more by developments in developed economies rather than the emerging markets themselves. As factors like geopolitical upheaval and varying central bank policies continue to shape price movements, the implications for governments are significant. An appreciating currency can deter exports while enhancing a country’s capacity to manage debt.
The International Monetary Fund (IMF) has raised alarms regarding the risks associated with trading in currency markets. Its latest financial stability report points out that nearly half of the global FX turnover is mediated by a small group of dominant banks, which raises concerns over market stability during periods of financial stress. A surge in currency volumes—up almost 30% over the past three years—has made the FX landscape increasingly lucrative in recent times. Notably, developed market currency volatility reached two-year highs earlier this year, before stabilizing.
With a more favorable trading environment emerging, carry trades—borrowing in low-yielding currencies to invest in higher-yielding ones—have regained traction. Hedge fund EDL Capital has reported significant profits attributed to successful bets against the dollar, marking a 28% return this year.
Data compiled for Reuters indicates that trading emerging market currencies generated nearly $40 billion in revenue for the top 25 global banks within the first nine months of this year, far surpassing earnings from trading major currencies such as the dollar, euro, and sterling.
However, not all emerging currencies benefited equally from the soft dollar environment. For instance, India’s rupee has reached record lows due to weak trade and investment flows, while Indonesia’s rupiah has been battered by concerns regarding central bank independence and political instability.
Despite a partial recovery in the dollar, which suffered significant losses earlier this year, analysts predict that forthcoming interest rate cuts from the U.S. Federal Reserve will lead to further dollar weakness. Market forecasts indicate two additional quarter-point rate cuts next year.
Against this backdrop, inflows into numerous emerging market currencies have surged. Nations such as Mexico and Brazil—with sound central banking practices and relatively high-interest rates—also boast strong performances among emerging currencies this year. Market observers expect the trend of robust inflows into emerging markets, across both bond and currency markets, to continue, reflecting a strong shift in investor sentiment.
