(Bloomberg) — An index of emerging market currencies fell slightly after being flat for most of the session after new U.S. inflation data confirmed bets that the Federal Reserve will cut interest rates.

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The release of the consumer price index report offset some of the slump triggered by a weakening yuan earlier in the session, pushing the MSCI currency index down as much as 0.2%. Eastern European and Asian currencies led to the losses.

“The data was broadly in line with expectations, so life goes on, as does the post-Trump consolidation process, or at least the first phase,” said Alejandro Cuadrado, a strategist at BBVA in New York. “A window of less volatility and less noise has opened.”

The Brazilian real was a standout gainer in Wednesday’s trading session, rising as much as 1.8% for the third straight day. After markets closed on Wednesday, the country’s central bank raised its key interest rate by 100 basis points to 11.25%, doubling the pace of its tightening campaign for the second session.

There has been speculation about President Luiz Inácio Lula da Silva’s health since his fall in October. After undergoing brain surgery earlier this week, Lula will undergo another medical procedure on Thursday to prevent further bleeding, according to a statement from the hospital where he is being treated. The new developments come at a time when the government is struggling to get widely expected spending cuts through Congress.

Yuan falls

Earlier in the session, the offshore yuan fell as much as 0.5% to 7.2921 per dollar after Reuters reported that Beijing may allow the currency to weaken further next year to counter the impact of possible U.S. tariffs under the president-elect to compensate for Donald Trump.

China’s yuan has fallen this quarter as policymakers increase monetary stimulus to make exports more competitive. The devaluation raises the risk of capital outflows and financial instability, challenges that could impact emerging markets tied to demand in the world’s second-largest economy as cheaper Chinese products undercut competition in other developing countries.

The correlation between China’s exchange rate and a broader FX benchmark for developing countries has risen to its highest level since June, underscoring that US-China tariff strategies remain a key risk.

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