Emerging Markets Surge as Currency Volatility Redraws Global FX Landscape

Economic

Summary:

Emerging market currencies are staging a powerful comeback in 2025, fueled by a weakening U.S. dollar, heightened global FX volatility, and renewed investor appetite for risk...

Forint Leads EM Currency Boom as Dollar Declines

In a year marked by geopolitical disruption and diverging global monetary policies, 2025 has seen a striking resurgence in emerging market (EM) currencies. The Hungarian forint has strengthened nearly 20% against the U.S. dollar, placing it among the best-performing EM currencies in over two decades. This reflects a broader rally across the space, as evidenced by the MSCI Emerging Market Currency Index, which hit a record high in July and is on track for its strongest annual return since 2017 with a gain exceeding 6%.

This EM currency surge is not viewed as an anomaly by market participants. Analysts, fund managers, and strategists widely interpret this as the early stage of a new cycle one in which emerging currencies reclaim relevance after years of underperformance. According to Jonny Goulden of JPMorgan, the tide is turning after a 14-year bear market for EM currencies, driven by a weakening U.S. dollar and a global portfolio rebalancing away from dollar-dominated assets.

Dollar Weakness and Developed Market Volatility Shift Capital Flows

A key catalyst for this trend has been the dollar's retreat. As developed economies navigate divergent policy paths and increased domestic volatility, investors are increasingly scrutinizing long-held assumptions about the greenback’s dominance. The weakening dollar has reawakened interest in EM assets, particularly currencies backed by stable macro fundamentals or central banks that remain hawkish relative to peers.

Surprisingly, much of the volatility in 2025 has originated not in developing markets but in the developed world. Elina Theodorakopoulou of Manulife observed that emerging markets were not the primary source of FX turbulence this year. Instead, shocks such as the U.S. “Liberation Day” tariffs, shifting trade alliances, and interest rate divergence among G10 central banks have created fertile ground for EM outperformance.

Carry Trades Reemerge as Currency Markets Stabilize

As short-term volatility has eased from its April peak when developed market currency swings hit a two-year high carry trades have reentered the spotlight. Traders have increasingly borrowed in low-yielding currencies to invest in high-yielding EM instruments, benefiting from the wider interest rate differentials and renewed stability in the FX landscape. Systematic hedge funds and bank FX desks have been among the largest beneficiaries of these shifts, reaping profits on well-timed directional bets.

The scale of this transformation is underscored by the latest Bank for International Settlements data, which shows global FX trading volumes rising nearly 30% over the past three years. This structural growth has enhanced liquidity but also raised systemic concerns due to the concentration of trading among a small number of major banks.

IMF Flags Structural Risks Amid Surging Volumes

While investors capitalize on the newfound dynamism in EM currencies, the International Monetary Fund has issued cautionary warnings. In its recent financial stability report, the IMF pointed to rising risk in currency markets, particularly due to the concentration of FX flows among a few large institutions. Should these banks withdraw during times of stress, liquidity could dry up rapidly, intensifying volatility and disrupting capital flows to and from vulnerable economies.

Governments, too, are navigating a delicate balance. On one hand, stronger currencies improve their ability to service external debt and attract foreign investment. On the other hand, sharp appreciation can dampen export competitiveness and stifle manufacturing-led recoveries, particularly in smaller, trade-dependent economies.

From Margins to Mainstream EM Currencies Regain Global Prominence

As 2025 draws to a close, EM currencies have reasserted themselves at the center of global FX markets. The narrative has shifted from fragility to opportunity, driven by structural changes in global capital allocation, declining dollar dominance, and newfound resilience across many developing economies.

While risks remain from concentration in FX intermediaries to geopolitical unpredictability the trajectory suggests a sustained recalibration. As hedge funds and institutional investors continue to reposition, and carry trades gain momentum, emerging markets may no longer be the periphery of global finance, but a central pillar of the next currency cycle.

Source: Reuters

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Gerik

Economic

Stocks

European Equities Advance as Markets Eye Policy Clarity

European stock markets kicked off a high-stakes week with modest gains across major indices. The pan-European Stoxx 600 rose 0.38% in early trading on Monday, signaling broad optimism as investors turned their focus to a series of key central bank meetings. National benchmarks followed suit, with the FTSE 100 gaining 0.43%, Germany’s DAX up 0.44%, France’s CAC 40 climbing 0.30%, and Italy’s FTSE MIB rising by 0.63%.

These advances reflect investor confidence heading into the final European Central Bank (ECB) meeting of the year, where policymakers are expected to keep interest rates unchanged at 2%. The anticipation of stable rates paired with potentially upgraded growth forecasts has provided a constructive backdrop for European equities to extend their gains.

Central Banks Take Center Stage as 2025 Winds Down

This week represents a critical juncture in Europe’s monetary policy trajectory, with several central banks the ECB, Bank of England, Sweden’s Riksbank, and Norway’s Norges Bank set to announce their final decisions of the year. While the ECB is broadly expected to hold rates steady, the Bank of England may opt for a small rate cut, reflecting diverging inflationary pressures and domestic growth conditions.

ECB President Christine Lagarde recently hinted at an upward revision to the eurozone’s GDP outlook for 2026, following a September upgrade to 1.2%. This reinforces a narrative of cautious optimism among European policymakers, even as geopolitical and macroeconomic risks remain in the background.

UK and eurozone inflation data due Wednesday could further guide investor expectations. A downside surprise in these figures might reinforce the case for policy easing in early 2026, while stickier inflation may prompt central banks to maintain a more hawkish posture heading into the new year.

Geopolitical Stakes Rise Amid Ukraine Funding Talks

Beyond monetary policy, European leaders will face mounting geopolitical pressure this week as they convene in Brussels to discuss a €210 billion loan package for Ukraine. A controversial element of the proposal involves potentially reallocating frozen Russian assets to support Kyiv, a move that could carry both financial and diplomatic ramifications.

The decision will test the EU’s ability to maintain unity in the face of prolonged conflict and fiscal fatigue. From a market perspective, a positive outcome could reinforce confidence in Europe's political cohesion, while any deadlock may revive concerns over internal fragmentation.

Global Macro Trends Influence Sentiment

Overnight trends from the U.S. and Asia-Pacific regions are also influencing European market behavior. Wall Street closed last week in a mixed fashion, as a broad rotation away from high-growth tech stocks into lower-valuation sectors created volatility. Futures remained flat on Sunday night, reflecting continued uncertainty ahead of a flood of delayed U.S. economic data due this week.

Key among those reports are the nonfarm payrolls and retail sales data originally delayed by the U.S. government shutdown and the November consumer price index. These indicators will likely shape near-term expectations for the Federal Reserve’s next moves and could reverberate through global asset markets, including Europe.

Meanwhile, Asian markets fell on Monday, echoing Wall Street’s tech-driven declines, and offering a cautionary signal to investors still bullish on global equities heading into the year-end.

A Pivotal Week for Policy and Markets

European markets are entering a decisive stretch, balancing between cautious optimism and lingering macro uncertainties. While the ECB is expected to maintain a steady hand, subtle shifts in tone, growth forecasts, and inflation commentary could signal the region’s 2026 policy direction. Coupled with high-stakes geopolitical decisions and global macro developments, this week’s events may set the tone for early 2026 investor behavior.

Whether current market gains can be sustained will depend heavily on the clarity, unity, and credibility of policy announcements in the days ahead.

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Samantha Luan

Forex

Economic

Blast furnaces at a ThyssenKrupp steel factory in Duisburg, Germany, November 5, 2025. REUTERS/Leon Kuegeler

Euro zone industrial output growth accelerated in October, bolstering views that the bloc is picking up momentum as trade uncertainty is dissipating, the labour market remains tight and consumption is inching up.

Industry expanded by 0.8% on the month after a 0.2% increase in September, in line with expectations, data from the EU's statistics agency Eurostat showed on Monday.

Compared to a year earlier, output growth accelerated to 2.0% in October from 1.2% in September, beating expectations for 1.9% in a Reuters poll of economists.

German industry, expanding by 1.4% on the month, was among the top performers, offsetting a 1.0% drop in Italy and lukewarm growth in France.

The euro zone economy has proven surprisingly resilient this year, and European Central Bank President Christine Lagarde has already said that another upgrade in the growth outlook is coming this week.

Still, expansion is far from spectacular. The bloc is only growing at a rate just above 1%, near its so-called potential, as exports, the main driver of the economy in recent decades, remain weak and the domestic sector is producing nearly all growth.

Industrial exports have struggled for years as surging energy costs have put the bloc at a cost disadvantage just as China was expanding its high-tech industrial base, grabbing market share.

While industry might be bottoming out this year, there is no boom in sight and it is still somewhat unclear how the new U.S. tariff regime will alter global trading patterns.

Nevertheless the bloc appears to be adjusting well, and even if there is no boom underway, the downside risk also appears limited.

"Incoming high-frequency indicators continue to point to positive momentum in activity heading into year-end," Barclays said in a note.

Source: Reuters

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Glendon

Cryptocurrency

Technical Analysis

As bitcoin BTC$89.907,85 struggles to hold above $90,000, market sentiment has once again slipped into extreme fear.

Over the past year, fear or extreme fear has accounted for more than 30% of all readings on the Crypto Fear and Greed Index. The index currently stands at 17, firmly within the extreme fear section.

Fear has dominated sentiment since the October liquidation crash more than two months ago, as bitcoin dropped 36% from its October all-time high. While the cryptocurrency market has yet to stage a meaningful recovery. With bitcoin currently trading nearly 30% below its all-time high, investor caution remains elevated.

A similar disconnect is occurring in U.S. equities. Sentiment currently sits at 42, which signals fear, according to the CNN Fear and Greed Index, even as the S&P 500 trades around 6,827, just a few percentage points below its all-time high.

Across both U.S. equities and cryptocurrencies, fear continues to dominate investor psychology.

Bitcoin entered a death cross in November, a technical pattern where the 50-day moving average falls below the 200 day moving average. In this instance, the death cross coincided with a local bottom near $80,000 on Nov. 21. Notably, every death cross during the current market cycle since 2023 has marked a significant local bottom, reinforcing its relevance as a contrarian indicator in this cycle.

Source: CoinDesk

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Gerik

Stocks

Economic

Tech-Led Sell-Off Hits Wall Street as AI Sentiment Wavers

On Friday, major U.S. indexes retreated sharply as investor enthusiasm for artificial intelligence stocks showed fresh signs of fading. Broadcom, a central player in the AI hardware space, plunged over 11% despite delivering earnings and forward guidance that beat expectations. The downturn triggered a broader sell-off in tech names such as Nvidia, AMD, and Oracle, pulling down the S&P 500 and Nasdaq Composite by 1.07% and 1.69%, respectively.

This week’s movement reflects a growing dissonance between company fundamentals and investor behavior, as markets increasingly question the sustainability of AI stock valuations. While financial stocks helped lift the Dow Jones by 1.1% on a weekly basis, that resilience failed to support broader indices amid tech weakness.

Contradiction Between Fundamentals and Market Reaction

Broadcom's earnings performance and future outlook exceeded analysts' expectations, reinforcing its position as a critical supplier in the ongoing AI infrastructure build-out. Bernstein analyst Stacy Rasgon expressed confusion over the market reaction, emphasizing the company’s accelerating AI momentum. Yet the sharp sell-off suggests a disconnect between fundamentals and valuation confidence likely fueled by fears of an AI-driven speculative bubble.

Investor caution was not triggered by deteriorating performance but by heightened sensitivity to any signals of margin compression or overvaluation. As Oracle’s refutation of Bloomberg's report on delayed data centers indicates, even speculative headlines are enough to cause outsized market responses. Without clear catalysts to affirm AI’s long-term profitability in the near term, this sentiment-driven volatility is likely to persist.

Global Macroeconomic Signals Add to Caution

Contributing to the souring risk mood were fresh signs of economic weakness from China, the world’s second-largest economy. November data showed that both retail sales and industrial production slowed more than expected, with fixed asset investment also contracting. These indicators raise concerns about global demand, especially for tech hardware and semiconductors heavily linked to supply chains in Asia.

The slowdown in China also weighed on Asia-Pacific markets early Monday, with South Korea’s KOSPI falling 1.84%, a move that echoes the weakness in U.S. tech-heavy indices. As China remains a key demand center for electronics and AI-related infrastructure, any deterioration in its macro outlook can have cascading effects on investor sentiment globally.

Broadcom at the Center of Diverging Views

Despite the stock decline, many analysts remain bullish on Broadcom and the broader AI theme. UBS strategists reiterated their positive outlook for 2026, driven by AI, electrification, and infrastructure investment. They argue that while current valuations are being questioned, the structural demand behind AI remains intact and will continue to benefit semiconductor and infrastructure-focused firms.

However, near-term volatility seems inevitable. Investors are increasingly risk-averse in light of high valuations, geopolitical noise, and uncertainties around fiscal and monetary policy in the U.S. Tech stocks particularly those associated with AI may face periodic corrections as expectations reset and broader market liquidity tightens into year-end.

Sector Rotation and the Resilience of Financials

One notable development amid the tech downturn is the resilience of financial stocks. With expectations of stable interest rates and robust earnings, traditional banks and insurers have helped support the Dow's performance. This may indicate the beginning of a broader sector rotation away from high-growth tech and into value-oriented plays, at least temporarily.

The divergence also reveals shifting investor priorities: from long-duration tech bets to near-term earnings stability in traditional sectors. If AI valuations remain under pressure, this rebalancing could continue into early 2026, especially if inflation data and monetary policy expectations turn more hawkish.

Copper Rally Reflects AI’s Physical Infrastructure Needs

While AI-linked tech stocks faltered, the physical infrastructure that supports them continues to gain value. Copper prices have soared to record highs, underpinned by increased demand from the energy transition and data center construction. The metal’s role in electrical wiring, transmission, and cooling systems positions it as a critical input in the expanding AI and clean energy ecosystem.

Citi analysts forecast further price increases in 2026, driven by structural supply constraints and the growing role of copper in AI infrastructure development. This creates a bifurcation in the AI theme: while equity markets debate valuations, commodity markets are responding to tangible, long-term demand.

Short-Term Volatility Masks Long-Term Potential

The latest market pullback underscores rising sensitivity around AI valuations and the challenges of navigating macroeconomic uncertainties. While Broadcom’s results point to a solid future, investor behavior reflects unease about timing and positioning. In the near term, sentiment may continue to override fundamentals, especially in high-momentum sectors.

Nonetheless, structural themes such as AI expansion, energy infrastructure, and digitalization remain intact, as evidenced by soaring copper prices and optimistic long-term forecasts. The market’s current volatility may simply represent a recalibration phase before a more durable upward trajectory resumes in 2026.

Source: CNBC

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Gerik

Economic

Weakened Output and Consumption Underscore Domestic Fragility

In November, China's industrial production expanded by 4.8% year-on-year, slightly below the 4.9% growth recorded in October and missing the 5.0% projection from a Reuters poll. This mild deceleration, while modest on paper, points to underlying structural fatigue in the world’s second-largest economy, particularly as global demand plateaus and domestic consumption remains tepid.

More concerning was the sharp slowdown in retail sales, which rose just 1.3% compared to the 2.9% gain seen in October. This marks a notable deterioration in consumer sentiment, especially worrying as it comes during a period typically characterized by increased seasonal spending. The underperformance reflects a broader pattern of weak demand and declining consumer confidence that is proving resistant to recent policy efforts.

Consumer Caution Deepens Despite Promotional Efforts

November's slump in retail activity is further highlighted by a significant 8.5% year-on-year drop in auto sales the steepest contraction in ten months. This outcome defies the usual fourth-quarter boost from year-end promotions and reveals that discretionary spending remains under intense pressure. Even the extended Singles' Day festival, which was prolonged to five weeks by major e-commerce platforms to boost sales, failed to revive demand meaningfully. This suggests a fundamental lack of willingness or ability among households to spend, despite aggressive marketing and discounting.

The muted performance indicates that the ongoing property sector turmoil continues to erode household wealth, thereby constraining consumption. Given that consumer spending is a critical pillar for rebalancing China's economic model, these results raise concerns about the sustainability of domestic-led recovery.

Fixed Asset Investment Falls, Raising Concerns on Investment-Led Growth

In a parallel trend, fixed asset investment also contracted by 1.3% in the January–November period, narrowing from a 1.7% decline in the first ten months but still reflective of sluggish momentum. The slight improvement was not enough to offset broader skepticism, especially as analysts had forecast a larger 2.3% drop.

This decline underscores a broader investment slowdown, particularly in real estate and infrastructure areas long relied upon to fuel GDP expansion. Persistent weakness in these sectors casts doubt on the effectiveness of traditional stimulus levers and highlights the limitations of a policy framework still centered around heavy production and capital deployment.

Policymakers Under Pressure Amid Growth Target Ambitions

Despite the growing signs of economic strain, Beijing appears determined to pursue a 5% growth target for 2026, as the country enters the first year of a new five-year development plan. This ambition, while politically important, faces increasing skepticism from global institutions such as the World Bank and the IMF, both of which have issued more conservative forecasts for China’s growth trajectory.

At a recent high-level policy meeting, Chinese leaders reaffirmed their commitment to a “proactive” fiscal stance, promising to stimulate both consumption and investment. However, their rhetoric also acknowledged a growing contradiction between strong domestic supply and faltering demand. This admission highlights a lingering reluctance to fully transition away from supply-side, export-driven policies toward a consumption-oriented economic model.

Geopolitical Frictions Threaten External Demand Resilience

China’s exports have remained relatively resilient, surprising analysts who expected sharper declines due to higher U.S. tariffs. However, this strength may not last. The nation’s substantial trade surplus exceeding a trillion dollars has provoked increasing pushback from trading partners. French President Emmanuel Macron, during a state visit, publicly criticized China’s trade imbalances and hinted at potential retaliatory tariffs. Similarly, Mexico approved tariffs of up to 50% on certain Chinese imports beginning next year.

These actions introduce new risks to China's export engine, potentially weakening one of the few bright spots in the country’s current economic landscape. If retaliation spreads, external demand could contract sharply, compounding domestic vulnerabilities.

China’s November data paints a sobering picture of an economy caught between weakening internal demand and growing external scrutiny. Industrial production and retail sales have lost momentum, while fixed investment continues to decline. Despite public commitments to rebalance the economy, the current policy response remains tethered to legacy models of growth. Until consumer confidence returns and structural imbalances are addressed, China’s path to sustainable recovery will likely remain uneven and vulnerable to both internal pressures and external frictions.

Source: Reuters

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Pepperstone

Commodity

Forex

Last week, gold showed resilience amid heightened volatility. Persistent dollar weakness, ongoing central bank purchases, and safe-haven demand driven by geopolitical uncertainty all supported the rally. At the same time, hawkish comments from Fed officials put some pressure on prices at elevated levels.

This week, markets face several key risk events, including the US November nonfarm payrolls and CPI data, as well as rate decisions from the Bank of England and the Bank of Japan. The outcomes of these events could influence interest rate expectations and risk sentiment, significantly shaping gold's trajectory into year-end.

Technical Observation: Bullish Momentum Accelerates, $4,300 Faces a Key Test

On the XAUUSD daily chart, gold's bullish momentum picked up sharply last week, with four consecutive daily gains, shifting the trend from consolidation to an active uptrend. On Thursday, prices broke above the key $4,250 resistance, and on Friday, intraday highs reached $4,353, marking a seven-week peak.

Although there was a rapid pullback of nearly $100 during the US session on Friday, with a long upper shadow highlighting high-level selling pressure, gold ultimately held above $4,300, posting a weekly gain of nearly 2.5%, signaling that bulls remained firmly in control.

Gold Outlook: Volatility Rises As US Data And Central Banks Take Spotlight_1

Entering Monday, gold continued its upward push, with RSI re-entering the overbought zone above 70, indicating sustained short-term momentum. If the daily candle closes above $4,300, market confidence in the uptrend will strengthen, with prices likely to test the previous high at $4,381.

However, considering the short-term strength, a dip below $4,300 could see support emerge around the $4,180 consolidation low and the uptrend line extending from late October, potentially attracting dip buyers.

Bullish "Base" Intact: Dollar, Central Banks, and Geopolitical Risks in Sync

Gold's ability to hold gains at high levels remains supported by three key factors: the weaker dollar trend, continued central bank purchases, and hedging demand amid geopolitical uncertainty. Together, these elements provide the underlying framework for gold's price support.

On the policy front, December saw a Fed rate cut alongside the resumption of short-term Treasury purchases to ease liquidity pressure, which helped short-term US yields ease. The dollar index fell for the third consecutive week, briefly testing near-term lows around 98.

Dollar weakness lowers the opportunity cost of holding gold and diminishes the relative appeal of higher-yielding assets, redirecting capital flows back into gold.

Gold Outlook: Volatility Rises As US Data And Central Banks Take Spotlight_2

Meanwhile, central bank buying continues to act as a long-term "anchor" for gold. According to the World Gold Council, global central banks added a net 53 tonnes of gold in October, a significant month-on-month increase and the highest single-month total this year. Consistent official purchases provide a solid base for gold at high levels and support market acceptance of current price ranges.

Geopolitical uncertainty also remains a factor. From US interception of Venezuelan oil shipments, the ongoing Russia-Ukraine stalemate, to tensions in Southeast Asia, these events continually reinforce demand for hedging. While each may have limited immediate impact, collectively they offer marginal support to gold amid broader uncertainty.

Hawkish Fed Voices Emerge, Capping Short-Term Bullish Momentum

Although Fed Chair Powell has clearly signaled that rate hikes are not being considered in the near term, hawkish voices persist within the Fed.

Last Friday, Cleveland Fed President Harker (2026 voting member), Chicago Fed President Goolsby, and Kansas City Fed President George highlighted persistent inflation concerns, favoring a more restrictive stance. These comments pushed down market expectations for 2026 rate cuts, naturally weighing on short-term demand for non-yielding gold.

In my view, this is more of a sentiment recalibration at high levels than the start of a trend reversal. As long as the dollar remains relatively weak, coupled with ongoing central bank purchases and geopolitical hedging demand, the medium-term bullish structure for gold remains intact.

Focus on US Data and Central Bank Decisions, Watch for Volatility

Overall, the bullish structure for gold remains intact, but short-term volatility has increased. With the holiday season approaching, active capital is winding down and market liquidity is thinner. Any deviation from expectations in major risk events is more likely to trigger trend moves rather than just intraday noise. In this environment, risk management is more important than directional calls.

In the US, key focus this week is on November nonfarm payrolls (Thursday AEDT) and CPI (Friday AEDT). Markets expect around 50k new jobs, a slight rise in the unemployment rate to 4.5%, and core inflation near 3%.

If labor data comes in slightly stronger, say 60–70k new jobs with unemployment at 4.4–4.5% and inflation broadly as expected, it would suggest the economy is not slowing sharply and that rate cuts still have room, potentially putting modest pressure on gold bulls.

Conversely, if the labor market shows a clear weakness—negative job growth, unemployment rising to 4.6% or higher, and core inflation falling to 2.8–2.9%—markets may price in a "recession trade," which would clearly benefit gold.

Additionally, several Fed officials, including Williams and Bostic, are scheduled to speak this week. Their comments on economic prospects and policy direction could further influence expectations for future easing, amplifying short-term price swings.

Globally, central bank policy divergence is also significant. The market widely expects the Bank of England to cut rates by 25bps, while the Bank of Japan has over a 90% chance of a rate hike. Diverging paths among major central banks could, via currency and rate channels, further intensify short-term gold volatility.