Emerging Market Currencies Slump Amidst Rising Dollar and U.S. Treasury Yields

Emerging market currencies faced pressure as the dollar and U.S. Treasury yields rose, following strong U.S. job data. The market scaled back expectations for immediate rate cuts. The euro and various EM currencies also weakened, while China introduced new measures to support the yuan.

Emerging markets felt the heat on Monday as MSCI's index tracking foreign exchange slumped to a six-month low. This downturn was driven by a robust U.S. dollar and escalating U.S. Treasury yields, which came in the wake of a stronger-than-expected U.S. jobs report, dampening expectations for hasty interest rate cuts in the American economy.

As of 0900 GMT, emerging market currencies had dropped by 0.3%, while the stock index marked a significant 1.6% fall, plummeting to a five-month low. This decline was particularly pronounced in Asian markets. The U.S. labor report highlighted a surprise uptick in job growth and a slight dip in unemployment, prompting market players to adjust their expectations for upcoming Federal Reserve rate cuts.

In contrast, the Russian rouble sought recovery against the dollar, despite looming U.S. sanctions targeting Russian oil exports. Meanwhile, China's strategic efforts to back the yuan by parking more dollars in Hong Kong stood out, as central banks across emerging markets rallied to counter the dollar's pervasive strength.

(With inputs from agencies.)