(Bloomberg) — A gauge for emerging-market currencies gained as President Donald Trump’s move to extend a deadline for aggressive tariffs on the European Union bolstered risk appetite, in a session marked by thin trading volumes due to holidays in the US and the UK.

MSCI’s gauge of EM FX, a total return index that includes interest earned on those currencies, climbed as much as 0.4% to an all-time high, though developing-nation currencies were largely mixed amid low liquidity. A gauge of the dollar hovered near its lowest level in almost two years.

Risk-on sentiment was also evident in some equity markets, though MSCI’s broad gauge for stocks fell. South Korea’s benchmark was the standout, rising 2%, while India’s flagship Nifty 50 gauge climbed 0.6%. 

“We’re starting to really see the stars align now,” Amy Oldenburg, head of emerging market equity for Morgan Stanley Investment Management. “We’ve seen the dollar weakening quite considerably — that’s really given a tailwind to some of our markets.” 

The moves came as Trump extended the tariff deadline on the European Union until July. The EU agreed to accelerate negotiations with the US to avoid a transatlantic trade war, following a phone call between Commission President Ursula von der Leyen and Trump — just days after the US president criticized the bloc.

Enthusiasm for the greenback has faded this year due to Washington’s unpredictable trade policy and concerns about the fiscal deficit, all of which have dented the US investment case.  

“Trump’s unpredictable trade and fiscal policies mean investors must hedge US exposure more carefully and reallocate away from US assets,” said Henrik Gullberg, macro strategist at Coex Partners Ltd. 

The Polish zloty was the top gainer in emerging markets on Monday. Brazil’s real, meanwhile, underperformed amid persistent jitters over fiscal policy and new tax measures. 

The government’s plan to increase a tax on financial transactions was met with criticism, and Finance Minister Fernando Haddad scrapped a 3.5% tax on offshore investments from Brazilian funds. Haddad told reporters on Monday that the government will decide on new fiscal measures by the end of the week. 

While Trump’s decision to extend the tariff deadline for the EU helps EM currencies, “gains have been relatively modest so far,” said Piotr Matys, a senior analyst at inTouch Capital Markets. That can “be attributed to concerns that Trump’s tariffs may have stagflationary consequences for the US economy, which for many EM countries is the most important trading partner.” 

Elsewhere, Trump said he was “absolutely” considering new sanctions against Russia amid escalating violence in Ukraine. Trump delivered the comments to reporters on Sunday, demonstrating growing frustration with Russian President Vladimir Putin and the state of peace talks. 

Ukraine’s dollar bonds have handed investors the worst showing among emerging and frontier markets in 2025 as prospects for a peace deal dwindle. That’s a sharp reversal from earlier gains around the turn of the year, when ceasefire bets made Ukrainian debt a top performer.

–With assistance from Marcus Wong and Catherine Bosley.

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