The US Dollar Index plunged in its third-largest drop of the year, wiping out all gains since March 3 and erasing the Bloomberg Dollar Spot Index’s entire 2026 advance. This reversal ignited a broad rally in risk assets, with the iShares MSCI Emerging Markets ETF jumping its most since April 9, 2025. Several country ETFs also posted double-digit and mid-single-digit gains, highlighting renewed investor appetite for emerging markets.

Foreign investors withdrew a net $70.3 billion from emerging market assets in March, the most since the market turbulence of March 2020. Both debt and equity portfolios saw significant redemptions, reflecting a sharp shift in sentiment before the recent dollar pullback. This marked reversal underscores ongoing volatility in capital flows to developing economies.

The sharp dollar decline may provide continued support for emerging market equities, potentially boosting EEM’s performance in the near term. However, persistent net outflows raise concerns about underlying investor confidence and valuation sustainability. Market participants will monitor further currency moves, fund flows, and macro data to gauge whether this rally can extend beyond a short-term reprieve.