USD Strength Pressures Emerging Market ETFs

The recent strength in the U.S. dollar and sudden pullback in developing country currencies have pressured emerging market ETFs in recent weeks.

Over the past three months, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), the two most popular and largest EM-related ETFs on the market, dipped 1.1% and 1.3% year-to-date, compared to the S&P 500’s 0.6% gain.

More recently, President Donald Trump’s decision to exit the Iran nuclear deal added another round of risk-off buying, which further helped support the greenback. In contrast, the Russian ruble, Indonesian rupiah and South African rand, among others, were among the worst off in the latest swing.

The recent rise in the USD and Treasury yields have dragged on emerging market asset performance, increasing debt costs and inflation for some developing countries while pulling back into the U.S., the Wall Street Journal reports.