(Bloomberg) — Asian currencies gained Monday as they caught up with a rally sparked on Friday by dovish remarks from Federal Reserve Chairman Jerome Powell, while most Eastern European and Latin American currencies declined.
The Thai baht and Malaysian ringgit were the top performers of the session after Powell said after the close of trading in Asia Friday that the time had come for rate cuts. A gauge of emerging market currencies is edging higher.
At the same time, the Mexican peso is leading losses as traders turned to less risky options in case tensions escalate in the Middle East. Mexico’s President Andrés Manuel López Obrador also continues to push through his judicial reform, shrugging off criticism in a press conference on Monday and undermining investor confidence.
“Currency volatility is everywhere due to the great uncertainty, which has increased after the events of this weekend” in the Middle East,” said Juan Perez, director of trading at Monex USA. “The situation in Mexico concerns us because of the radical changes that may come.”
The Colombian and Chilean currencies were gaining, boosted by rallies in oil and copper, respectively.
On the equity side, emerging stocks are having a good day, jumping as much as 0.8% before trimming their advance. The rise in the MSCI EM equities benchmark was driven by shares in communication, commodities and health-care companies.
The signal from Powell that the US is nearing the start of monetary easing means investors will now look for clues about the pace of reductions. Emerging stocks have lagged the gains in US equities this year as traders repeatedly pushed back their views on when the Fed will start reducing borrowing costs, which should boost the allure of riskier assets.
“If the Fed is truly data dependent, we expect firm US data over the coming weeks to reinforce our belief that the economic trajectory does not warrant aggressive easing,” said Win Thin, global head of markets strategy at Brown Brothers Harriman in New York.
The Hungarian forint and the Polish zloty were among the worst performers on Monday, while the South African rand pared most of its losses in thin market liquidity due to a holiday in the UK.
Hungarian central bank will hold a policy meeting on Tuesday, with most analysts in a Bloomberg survey expecting the base rate to remain unchanged at 6.75% following a surprisingly high inflation reading for July. Poland’s government is due to present its 2025 budget draft this week.
The Israeli shekel shrugged off rising tensions in the region, gaining 0.4% to the dollar amid signs that talks for a cease-fire in Gaza will continue.
Elsewhere, Indonesian sovereign bonds were the best performers among emerging markets, according to a Bloomberg index. The rally followed news that Indonesia’s electoral commission published a regulation that ended any remaining chance for President Joko Widodo’s youngest son to run in November’s regional elections, the prospect of which contributed to widespread protests last week.
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