Emerging Market Currencies Surge Against Dollar: Record Returns Fuel Carry Trade

Emerging market currencies are experiencing their strongest performance in over a decade, exceeding the U.S. dollar across the board in 2025. According to Bloomberg data, this rally is fueled by factors including looser monetary policies from the Federal Reserve, defensive positions taken by developing countries, and a surge in the carry trade. This strategy involves shorting the dollar to invest in higher-yielding currencies, resulting in over 10% gains this year. While some analysts express concern regarding overvaluation, others believe there’s more upside potential before market conditions shift.