(Bloomberg) -- Emerging-market currencies weakened on Thursday, erasing this month’s gains, as hotter-than-expected US inflation data soured risk appetite. Tension in the Middle East and the weakening of the won after South Korea’s elections also weighed on the index.

The MSCI gauge for developing world currencies dropped more than 0.3% to trade at the lowest level in two months on a closing basis, with the South Korean won at its weakest since November 2022. The gauge for EM stocks was also trading 0.4%lower as of 10:25 a.m. in London.

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Adding to concerns, rising geopolitical tensions in the Middle East have been pushing oil prices above $90. Bloomberg reported on Wednesday that the US and its allies believe major missile or drone strikes by Iran or its proxies against military and government targets in Israel are imminent.

“There is always the risk of escalation, particularly in south Lebanon, and all regional markets would obviously respond negatively to that,” said Hasnain Malik, head of equity strategy research at Tellimer in Dubai. “But there are limits as well, given the difficulty of conducting a direct inter-state war with Iran.”

Elsewhere, the forint rebounded against the euro and Hungary’s 10-year bond yields crossed 7% for the first time since November after the publication of March inflation data. While price growth slowed further within the central bank’s tolerance band, rate setters have pledged to moderate the pace of easing going forward after swings in the currency.

In neighboring Romania, which is yet to start its monetary easing, inflation slowed for a second month, data showed. Officials and market participants are considering prospects for the first interest-rate cut in three years at the central bank’s next meeting in May.

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