(Bloomberg) -- Currencies from developing nations climbed as President Donald Trump’s tariffs sent the greenback plunging and emerging stocks slid as his steep levies reverberated across Asian markets.

The MSCI index for emerging-market currencies rose 0.2%, erasing an earlier decline as the rout in the dollar intensified in US hours. The Mexican peso rose as much as 1.6% after the country continued to have exemptions from levies on imports in the free-trade agreement with the US. Brazil’s real and Colombia’s peso also rose more than 1% each against the greenback.

“Most of EM will do well against a weaker dollar, especially LatAm, as the strategic beneficiary of the tariff mix,” said Alvaro Vivanco, head of strategy at TJM FX. “I expect rates across the board to continue to decrease. Feels like the market will need some time to digest the growth vs. inflation hit, but for the rest of the world this is disinflationary.”

The Bloomberg dollar index plunged 2%, set for the worst day since November 2022 amid concern Trump’s trade policies will dent US growth. Traders now see a 50% chance that the Federal Reserve will cut for a fourth time this year.

Currencies from Eastern Europe led overall gains against the dollar, mirroring the euro’s rise, though they declined versus the single-bloc currency.

Asia Hit

Asian markets took a hit after being heavily targeted by Trump’s so-called “discounted reciprocal” tariffs. Total tariff rate against Chinese goods will rise to 54%, the US said Wednesday, sending the Chinese yuan down 0.3% as one of the worst performers among peers.

On Thursday, China’s credit score was downgraded by Fitch Ratings to A from A+ with a stable outlook, citing continued weakening of public finances and a rapidly rising public debt trajectory.

Some of the poorest countries were punished for their trade imbalances with the US. The Thai baht dropped as the country faces a 36% levy on its exports. Vietnam saw stocks tumble more than 6% after being slapped with a 46% duty. Dollar bonds in Sri Lanka slumped, leading EM losses after the US announced a reciprocal tariff of 44%.

The focus on Asia also reverberated strongly across the stock market. The benchmark for developing-world stocks fell 0.7%, driven by slumps in Chinese shares. Consumer discretionary and financial shares were the worst-performing sectors in the region.

South African stocks, meanwhile, plunged the most in five years as the country was hit with some of the highest levies, clouding the outlook for corporate profits and the economy.

Negotiations Begin

Investors are concerned the steepest American tariffs in a century threaten to disrupt global trade and spark risks of retaliation from around the world.

Public reaction from governments in developing nations was muted in the immediate aftermath of Trump’s announcement, and the tariffs are now expected to set off negotiations with the White House to try and reduce the blow.

Thailand is devising short-term measures to help cushion the impact on manufacturers and exporters, Prime Minister Paetongtarn Shinawatra said. Vietnam planned to dispatch another delegation to the US after an earlier charm offensive failed.

The tariffs have shown little distinction or favor for close US allies or leaders friendly with Trump.

Hungary, where Prime Minister Viktor Orban has a close rapport with the US president, will see its fragile economy hit particularly hard because it relies heavily on car production. The nation’s Foreign Minister Peter Szijjarto blamed the European Union for missing an opportunity to reach a deal with the US before it was too late.

Repricing

The tariff announcement also sparked a repricing across rate markets. The US 10-year yield fell below 4% for the first time since October.

In Latin America, Mexico’s one-year swap rates fell as much as 9.5 basis points to below 8% on Thursday, while some contracts in Brazil tumbled more than 30 basis points. The move comes as traders are seeing more room for policymakers to cut rates under a scenario of weaker global growth and a wavering US dollar.

“This kind of dollar weakness is not the correct dollar weakness for EMFX,” said Ning Sun, a senior emerging-market strategist at State Street Global Markets. “Today, I see EM benefits from the USD washout against other G10. But it would be difficult for EM to outperform sustainably if global growth slows.”

--With assistance from Matthew Burgess, Andras Gergely and Nicolle Yapur.