Delayed Iran strikes ease EM stress, but higher oil and a firmer US dollar test long‑term returns
Emerging‑market assets snapped back after US President Donald Trump delayed new strikes on Iran, but the war-driven oil shock and stronger US dollar still cloud growth and inflation prospects across key developing economies.
Emerging-market currencies and equities pared steep losses after Trump said the US had held talks with Iran and postponed further strikes for five days, sending oil prices tumbling, reported the Financial Post.
MSCI’s Emerging Markets Index trimmed losses to 2.1 percent from as much as 3.6 percent earlier, while a sister gauge tracking emerging currencies flipped to gains of 0.7 percent.
The Chilean peso led the advance, leaping 2.3 percent as the country imports all its energy needs, while the Hungarian forint and South African rand were also among the best performers.
“Markets are relieved,” said Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co., according to the Financial Post.
The rebound came even as three weeks of conflict in the Middle East weighed heavily on emerging-market assets, pushing investors to withdraw more money from exchange-traded funds that buy EM stocks and bonds.
Outflows from these funds for the two weeks ending March 20 totalled US$3.82bn.
In case of a de-escalation, Alvaro Vivanco, Wells Fargo’s emerging markets macro strategist, recommends shorting the dollar against the Chilean peso with a target of 910, and betting on short-term rate reductions in Mexico and Brazil, according to the Financial Post.
Trump wrote on his Truth Social platform that the US and Iran had held “very good and productive” conversations about a “complete and total resolution of hostilities in the Middle East”, while Iran denied it had engaged in any direct negotiations, Reuters reported.
The Financial Post said Trump also stated that the Strait of Hormuz — vital to global energy supplies — will be open very soon if talks are successful and added that it may be jointly controlled.
Israel continued to bomb Iran, where local media denied the claim of talks with the US.
The comments hit the dollar and pushed oil 10 percent lower, though Brent crude remained slightly above US$100 a barrel.
Reuters reported that oil prices later edged higher after plunging more than 10 percent on Monday, with Brent crude futures retopping US$100.94 a barrel on supply concerns, as the war all but halted shipments of about one-fifth of the world’s oil and liquefied natural gas through the Strait of Hormuz.
Rodrigo Catril, a currency strategist at National Australia Bank, said “the news overnight is giving a breather to volatility at least, but it’s difficult to see that this is going to trigger a risk-on trend.”
Chris Weston, head of research at Pepperstone, said “the key question is whether participants see this as a genuine extension that brings a deal closer, or simply a delay that prolongs uncertainty.”
Reuters said the US dollar index rose 0.2 percent to 99.387 after a 0.4 percent drop to near a two‑week low on Monday, and is now up 1.8 percent this month, on track for its strongest gain since October as the conflict fuelled safe‑haven demand and traders scaled back bets on a Fed rate cut this year.
The Financial Post reported that the South African rand gained 1.3 percent on improved risk sentiment, with traders now pricing four rate hikes this year after having priced cuts just a month ago.
South Africa’s central bank is expected to hold rates steady on Thursday but signal a hawkish stance, with a similar outcome expected of central bank meetings in Chile, Hungary and Mexico this week, and markets pricing rate hikes in all these countries over the coming year.
Reuters reported that Goldman Sachs has pared its growth estimate for India for 2026 and now forecasts a 50 basis points hike in policy rates as the economy contends with sharp depreciation in its currency.
Goldman forecasts the Indian economy will grow by 5.9 percent in calendar 2026 compared to its pre-Iran war forecast of 7 percent, after cutting its growth forecast to 6.5 percent on March 13.
Goldman now expects the near-shutdown of flows through the Strait of Hormuz to extend into mid-April before normalizing over the following 30 days, with Brent crude oil prices to average US$105 in March and US$115 in April before falling to US$80 per barrel in the fourth quarter.
Analysts have raised their 2026 inflation forecast for India to 4.6 percent from 3.9 percent and now expect a 50‑basis‑point policy rate hike to respond to currency pressure.
Reuters said the rupee is down 4 percent against the US dollar so far this year, on top of a 4.7 percent slide in 2025.
India’s current account deficit could widen to 2 percent of GDP in 2026, from 1.3 percent of GDP in the October–December 2025 period.
