Line chart showing the U.S. Fed Trade Weighted Nominal Broad Dollar Index and the J.P. Morgan Emerging Markets Currency Index from January 2007 to June 2024. The emerging markets currency index is a near-mirror image of the trade weighted dollar index. The dollar was on a path of robust growth between 2021 and September 2022 while emerging market currencies had been decreasing. Between late September 2022 and June 2023, the dollar weakened while emerging market currencies appreciated. In the second half of 2023, the dollar was relatively rangebound versus emerging market currencies. Since 2024, the dollar has appreciated.
Sources: Bloomberg, Federal Reserve, and Wells Fargo Investment Institute. Monthly data from January 1, 2007, to June 30, 2024. Shaded areas represent periods of a U.S. economic recession. The U.S. Fed Trade Weighted Nominal Broad Dollar Index is a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners. The J.P. Morgan Emerging Market Currency Index tracks the performance of emerging market currencies relative to the U.S. dollar. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.
Foreign investing involves risks typically not associated with investing domestically, including currency, transaction, volatility and political and regulatory uncertainty. These risks are heightened in emerging markets. Currency risk is the risk that foreign currencies will decline in value relative to that of the U.S. dollar. Exchange rate movements between the U.S. dollar and foreign currencies may cause the value of an investment to decline.
Key Takeaways
- Emerging market (EM) currencies were mixed against the U.S. dollar during the second quarter. The Chinese yuan was roughly flat, while most currencies elsewhere in Asia and Latin America declined further.
- We continue to believe that sustained stronger performance in EM currencies may not be seen until we move past the current period of dollar strength.