06:37 AM EDT, 03/18/2025 (MT Newswires) -- Emerging market (EM) currencies have continued to rebound against the US dollar (USD) at the start of this year and they are currently on track for their best quarterly performance since Q4 2020 following the negative COVID-19 shock, said MUFG.

The best-performing EM currencies over the past week have been Russia's RUB (+4.1% versus the USD), Brazil's BRL (+2.2%), Mexico's MXN (+1.6%), Chile's CLP (+1.5%) and Colombia's COP (+1.5%), wrote the bank in a note to clients. While Malaysia's MYR (-0.7% versus the USD) and Taiwan's TWD (-0.4%) have underperformed.

The RUB has benefitted from building optimism over a potential ceasefire deal between Russia and Ukraine, stated MUFG. Presidents Donald Trump and Russian President Vladimir Putin are expected to speak on Tuesday to discuss territory and dividing up certain assets. President Trump has expressed optimism that there is a "very good chance" for a deal.

Latin American currencies have outperformed supported in part by the pick-up in commodity prices this month, pointed out the bank. The price of copper has risen to its highest level since Q2 of last year. It follows the announcement towards the end of February that President Trump has ordered an investigation into copper imports which is encouraging market participants to bring forward demand.

At the same time, the latest activity data from China at the start of this year is proving stronger than expected providing support for commodity prices and related currencies. Retail sales (+4.0% year-to-date year over year), industrial production (+5.9% YTD year over year) and fixed asset investment excluding rural (+4.1% YTD year over year) all came in stronger than expected in February.

It provides some comfort for Chinese policymakers before the 20 percentage points of tariff hikes were put in place on imports from China at the start of Trump's second term, added MUFG. China has provided updated guidelines for providing fresh support for consumption including room for expanding the goods trade-in program and childcare subsidies although it was short on details.

The weaker USD and lower U.S. yields are providing a tailwind for EM currencies, according to the bank. Building concerns over slower U.S. growth in response to heightened policy uncertainty and trade tariffs have hurt business and consumer confidence.

At this week's FOMC meeting, MUFG expects the Federal Reserve to acknowledge that downside risks to U.S. growth have increased but still reiterate that it isn't in a rush to resume rate cuts right now. The U.S. rate market has already moved to bring forward expectations for the next Fed rate cut to June and is pricing in two to three further cuts in total this year which should help to dampen the negative impact on the USD from the Fed's policy update.