The MSCI Emerging Market Currency Index reached a record high on August 6 as US inflation data tempered expectations for Federal Reserve rate hikes. The implied probability of a September rate hike fell to 35%, down from 55% a week earlier. The Fed kept its target rate unchanged at 3.50% to 3.75% at its July meeting while year-over-year inflation stood at 3.4%. Dollar weakness and declining oil prices revived appetite for high-yielding currencies such as the Colombian peso and Brazilian real. The carry trade, which involves borrowing in low-yielding currencies to invest in higher-yielding ones, has become particularly attractive as a result.
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