The resurgence of the US dollar, driven by speculation that US interest rates may climb further, has pushed a key gauge of emerging market currencies into negative territory for the year.

A measure tracking the performance of these currencies declined on Wednesday, erasing all gains made in 2026 so far.

The renewed strength of the dollar sent the MSCI Emerging Markets Currency Index to its lowest level since April.

On Wednesday, the index initially fell by 0.3% before paring some losses as Federal Reserve Governor Christopher Waller spoke at the European Central Bank's forum in Sintra, Portugal, alongside central bank officials from Europe and the UK.

Concurrently, the MSCI Emerging Markets Equity Index also recovered from its morning decline following Waller's remarks, closing with a loss of less than 0.1% after adjustments.

At the ECB's Sintra Forum on July 1st, Waller participated in a panel on global monetary policy with ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem.

While markets are keenly focused on whether the Fed will raise rates at its next meeting, Waller did not provide explicit policy signals.

However, he repeatedly emphasized that the Fed would not accept inflation persistently above its 2% target.

Notably, Waller indicated that US inflation expectations have moderated over the past four weeks and inflation risks have decreased compared to before, but the Fed will not alter its policy course based on short-term data fluctuations.

"Compared to his stance after the last policy decision, Waller's comments this time were noticeably more dovish," said Marco Oviedo, a strategist at XP Investimentos.

Recently released US data showed that private-sector hiring remained robust in June, potentially reinforcing market expectations that the Fed's next move is more likely to be a rate hike than a cut.

Consequently, traders are now focused on the US non-farm payrolls report due on Thursday.

Despite the recent pressure, some investors remain steadfastly optimistic about emerging market currencies.

"I remain positive on emerging market currencies because many of them offer higher yields, and their central banks have enhanced their policy credibility during the recent oil price shock," said Rajeev De Mello, a global macro portfolio manager at Gama Asset Management SA.

De Mello expressed particular optimism for high-yielding Latin American currencies.

On Wednesday, most Latin American currencies weakened alongside other emerging market currencies.

The Brazilian real declined after a new poll showed President Luiz Inácio Lula da Silva maintaining his lead over his more market-friendly rival, Jair Bolsonaro, ahead of the October presidential election.

Meanwhile, the Colombian peso gained ground after the country's central bank announced an interest rate hike, and President-elect Álvaro Uribe Vélez named his finance minister.

The US decision not to renew the trade agreement with Canada and Mexico, opting instead for an annual review of the pact, was largely anticipated by markets.

As a result, it did not trigger significant volatility in the Mexican peso, although the currency still fell approximately 0.4% on the day.