For most of the past year, emerging-market currencies were having a moment. The Colombian peso surged nearly 20%. The South African rand and Israeli shekel posted double-digit gains. Traders who had bet against the dollar were looking very smart.
That trade is now unwinding at speed. The US dollar, which had fallen roughly 10% on a trade-weighted basis through early 2026, hitting a four-year low, has snapped back with enough force to erase the gains that EM currencies had accumulated over months. Several developing-nation currencies are now sitting at or near record lows against the greenback.
What flipped the script
Throughout 2025 and into early 2026, the consensus trade was straightforward. The Fed was expected to keep easing, US interest rate differentials with emerging markets were narrowing, and the dollar was losing its gravitational pull. Money flowed into higher-yielding EM assets. The Colombian peso’s 19.7% gain against the dollar through April 2026 was perhaps the most eye-catching example, but it was far from the only one.
Then the mood shifted. JPMorgan upgraded its dollar outlook in mid-May 2026, citing a reassessment of Fed policy trajectory and a US labor market that kept printing resilient numbers.
