Emerging-market currencies fall a fourth day as Fed meeting begins

Emerging-market currencies fell for a fourth consecutive day on Tuesday as surging oil prices, a stronger dollar, and US Treasury yields breaching the 5% threshold combined to pressure riskier assets across the globe. The selloff comes on the first day of the Federal Reserve's two-day policy meeting, with investors bracing for a potential rate hike on Wednesday.

Oil Shock and Yield Spike Converge

MSCI Inc.'s ↗ 0.62% benchmark for developing-nation currency returns dropped 0.3% by midday in London, heading for its longest streak of declines since June, while the equivalent gauge for stocks fell 0.9%. The South African rand weakened 0.4% to 16.33 per dollar as higher energy costs and softer gold prices weighed on the commodity-dependent economy.bloomberg+1

Oil prices have climbed sharply after attacks on Saudi Arabian energy infrastructure left the kingdom's East-West pipeline offline. Brent crude settled at $105.68 per barrel on Monday after rising about 1%, with the benchmark having gained roughly 50% since the start of the conflict, according to The New York Times. The 10-year US Treasury yield, meanwhile, touched 5.014% on Monday — its highest level since October 2023 — before easing slightly.reuters+3

"Lower gold and other precious metal prices are further weighing on the local currency," said Wichard Cilliers, head of market risk at TreasuryONE. "However, the main concern remains the impact of the high oil price on the economy."reuters

Asia and India Feel the Squeeze

Emerging Asian markets also slipped as the stronger dollar and elevated yields drew capital toward safer US assets. In India, the BSE Sensex tumbled over 500 points while the Nifty 50 dropped more than 200 points, with banking, energy, and infrastructure stocks leading losses. India imports the vast majority of its crude, making it especially vulnerable to sustained oil price increases that could widen the current account deficit and stoke inflation.finimize+1

The Mexican peso also weakened, with the USD/MXN exchange rate rising to around 17.15, up from about 16.98 in the prior session.tradingeconomics+1

Fed Decision Looms

Markets are now focused on the Federal Reserve's September 15-16 meeting, where a 25-basis-point rate hike is widely expected. The decision, due Wednesday afternoon, will be accompanied by a Summary of Economic Projections that could signal whether further tightening lies ahead. Any hawkish surprise from Fed Chair could deepen the rout in emerging-market assets that are already contending with an energy shock and tightening global financial conditions.federalreserve+2