Emerging market currencies are up 13 per cent from their post-pandemic lows to record highs, but the rally now seems to be fading.

The South African rand, the best performer this year, has stagnated. Options traders are increasing their bearish bets on the Russian rouble, despite hawkish comments from the governor of Russia's central bank last week. The Chilean peso suffered its biggest drop in three weeks on Tuesday as the collapse in copper prices darkened the country's terms of trade.

According toJPMorgan Chase & CoThe implied volatility of currencies in developing countries rose for the first time in two weeks, raising hedging costs and weakening the attractiveness of high-yielding currencies, according to an indicator of.

Signs of excessive risk appetite in emerging markets are emergingMorgan StanleyThe quantitative model shows that it is time to turn to the defensive. For Saxo Bank andFrench Societe GeneraleFor banks, if the Fed shows that it is willing to withdraw its support measures sooner than investors expected, thereby boosting the dollar, the tipping point could come as early as this week.

Emerging market currencies have risen about 3 per cent this quarter and hit record highs. This is partly due to the decline in Treasury yields from a 14-month high set in March.