Emerging market assets advanced after US President Donald Trump announced a ceasefire between Israel and Iran, bolstering risk sentiment across the region.
MSCI’s gauge of emerging market currencies, a total return index that includes interest earned, rose 0.4% on Tuesday during Asian trading. The South Korean won and the Philippine peso led the advance. A regional stock index surged as much as 1.6%, while South Korea’s Kospi jumped 2.8%.
Trump’s surprise announcement, made via his Truth Social platform, had an immediate impact on crude oil prices, with WTI futures slumping more than 5% shortly after the post.
“As geopolitical risk premiums soften, EM FX across regions should benefit,” said Brendan McKenna, a currency strategist at Wells Fargo in New York. “Currencies associated with commodity importing countries in Asia and across EM regions can benefit the most as terms of trade will improve as oil prices fall,” he added.
Aside from geopolitical tensions in the Middle East and fluctuations in oil prices, investor attention in the region may soon shift back to the US Federal Reserve.
See also: Asian markets brace for fallout from US tariff policies: Fidelity
Fed Chair Jerome Powell is scheduled to deliver his semiannual policy testimony before the US House today.
“Asia was previously more exposed via the oil price channel,” said Eddie Cheung, a senior emerging markets strategist at Credit Agricole CIB in Hong Kong. “New catalysts for moves will probably come from outside the Middle East if the truce does appear to hold. The market may focus back on Powell’s testimony as a potential next driver.”
Chart: Bloomberg
