Currencies in Europe, the Middle East and Africa recovered from recent losses on Tuesday, while emerging-market stocks held near record highs as increased liquidity and low lending rates made a favourable environment for equities.
A spike in U.S. yields — on expectations of more debt issuance in the country — pushed up the dollar and drove capital flows out of emerging markets, particularly from currencies and bonds.
Continued dollar strength and high yields could eventually be negative for emerging markets. Investors have also begun pricing in a possible U.S. interest rate increase by as soon as late 2022.
Turkey’s lira rose 0.4% to the dollar after losing over 2% in the past three sessions. South Africa’s rand rose 0.3% after tumbling nearly 7% over the past six sessions.
The rand was particularly hit by the discovery of a new coronavirus variant in the country. Spiking infection rates in EMEA have also pressured currencies with the prospect of more economic disruptions.