EM Currencies Outperform G-7 in Carry Trade-Driven Stability: EUR, USD, JPY Volatility Rise

EM currencies have shown greater stability than G-7 peers for 199 consecutive days, per JPMorgan volatility indexes, the longest stretch since 2008 and likely to surpass 208 days if it continues. A weaker dollar, expectations of gradual Fed easing, and strong commodity prices are underpinning the carry trade, which attracted the fastest inflows into emerging markets since 2019. The Bloomberg index of eight EM currencies has gained about 2.8% this year, extending last year’s 17.5% rise. In contrast, developed-market currencies face volatility: implied dollar and yen volatilities climbed amid trade and Fed chair uncertainty, and concerns over Japan’s fiscal outlook and potential intervention could pressure the yen further.