Most emerging-market currencies weakened Tuesday as geopolitical tensions surrounding the U.S.-Iran conflict created market uncertainty, even as developing-nation stocks climbed for a fourth consecutive day lifted by investor optimism in artificial intelligence.
The currency decline reflected persistent confusion over progress toward a U.S.-Iran peace deal. Overnight clashes near the Strait of Hormuz offset earlier signs of negotiation, fueling unease over the critical shipping route. The military action unfolded hours after President Donald Trump said talks with Tehran to extend a ceasefire and reopen the strait were proceeding.
South Africa's rand, widely regarded as a benchmark for risk appetite due to its high liquidity, was among the worst-performing emerging-market currencies. The broader MSCI gauge for emerging-market currencies traded with little overall change, masking significant individual declines.
An index for emerging-market stocks advanced about 0.5 percent, extending its rally to a fourth day on strong performances in Asian markets, which reopened after a Monday holiday.
South Korea's Kospi index surged 2.6 percent to a record high, while Hong Kong stocks also advanced. Taiwan overtook India in stock market value, driven by a rally in Taiwan Semiconductor Manufacturing Co. and broader investor enthusiasm for artificial intelligence.
Oil prices rebounded after falling Monday. Brent crude futures rose, reflecting the renewed risk premium tied to Strait of Hormuz tensions and the ongoing U.S.-Iran impasse.
In Sri Lanka, the central bank raised its benchmark interest rate by a full percentage point, its first monetary tightening in three years, citing inflation pressures exacerbated by the Iran conflict.
Juan Perez, director of trading at Monex USA, said, "The confusion is part of the story. Are markets optimistic or not? It changes every hour."
Secretary of State Marco Rubio said Tuesday that a final agreement between the United States and Iran would likely take several days to finalize, leaving the immediate trajectory of the conflict unresolved.
Karen Ward, JPMorgan Asset Management's EMEA chief market strategist, told Bloomberg that markets are looking beyond current geopolitical concerns toward investment opportunities from increased public, military and corporate spending worldwide. "The more chaotic the world becomes, the more that's creating spending. That's really what markets are focused on," Ward said.
Geopolitical uncertainty is weighing directly on currency stability while specific sectors—technology and AI in particular—continue to attract capital, driving equity gains in select regions.
