Emerging-market currencies rose for a 10th straight week, the longest run since 2007, as a weaker yen-driven dollar and yield-seeking flows outweighed a strong US jobs report. The August CPI print due Sept. 11 now decides whether the Fed pauses in September and the rally extends.
Emerging-market currencies are on track to extend their winning streak to an 11th week, with the MSCI gauge having climbed for 10 straight weeks — the longest run since 2007 — as traders bet the August US inflation report will let the Federal Reserve hold rates at its Sept. 16 meeting.
"The jobs data confirms CPI is the truly key data point," said Marco Oviedo, a strategist at XP Investimentos. "If CPI comes in line and core inflation falls on an annual basis, a Fed pause is almost certain."
The MSCI emerging-market currency index rose 0.4 percent Friday, heading for a 0.7 percent weekly gain, even after a stronger-than-expected US payrolls report briefly lifted the dollar and pressured EM assets before they recovered. The index has not posted a longer winning streak since 2007. The MSCI emerging-markets equity benchmark added 1.5 percent Friday, turning the week positive, led by artificial-intelligence stocks.
The rally has been driven by a sharp appreciation in the yen on speculation the Bank of Japan may intervene or shift policy, which weakened the dollar, and by sharply higher developed-market bond yields that pushed funds to diversify into EM assets for yield. The US added 162,000 jobs in August, more than double the 65,000 forecast, keeping a September hike on the table — futures priced about a 60 percent chance of an increase before the CPI release, up from 49 percent Thursday, according to CME FedWatch.
The August consumer price index, due Sept. 11, is expected to show inflation at a 3.4 percent annual rate, unchanged from July, while the Fed's preferred measure stands at 3.7 percent — well above the 2 percent target. Fed Chair Kevin Warsh said last week at Jackson Hole that inflation had not shown sufficient improvement and the central bank might have "more work to do." Yet Governor Christopher Waller said he would be inclined to hold rates if the data shows cooling, and New York Fed President John Williams pointed to evidence that inflation is easing as tariff effects fade and energy costs have not spread to other services.
The stakes for EM assets are high. A soft CPI print that locks in a pause would likely extend the currency rally and keep yield-seeking flows intact, while sticky inflation could revive hike expectations and trigger outflows. Standard Chartered economist Dan Pan cautioned that even a weak reading would offer only temporary relief given how entrenched price pressures remain. The last time the Fed signaled a pause after a stretch of strong data was in late 2023, when EM currencies rallied for several months before the central bank eventually cut rates in 2024.
The 10-year Treasury yield has climbed steadily through the year to 4.78 percent from 4.20 percent at the start of 2026, while the 2-year yield rose to 4.38 percent after the jobs report. Oil's surge — Brent settled at $96.28 a barrel, up 9.2 percent for the week, as the US war with Iran closed the Strait of Hormuz — has kept headline inflation elevated and complicates the Fed's path. The decision at the Sept. 15-16 meeting will hinge on whether the CPI report shows the disinflation that Waller and Williams have signaled would justify holding the policy rate.
This article is for informational purposes only and does not constitute investment advice.
