Emerging-market currencies fell across the board on Wednesday in a strong session for the dollar as markets digested mixed signals from US Federal Reserve (US Fed) officials over the rate path ahead.
The MSCI index tracking emerging-market currencies declined 0.3%, with the Hungarian forint, the Czech koruna and the Polish zloty falling at least 0.8% each. The Bloomberg dollar index is up 0.5%, while Treasury yields are climbing.
“Markets has revised up some cut expectations given the recent US Fed speech,” said Marco Oviedo, a senior strategist at XP Investimentos. “There will be a division among members so market is unsure how that is going to play going forward, while the data is still inconclusive.”
For Oviedo, it’s a “typical” risk off day, though it seems “contained” given the lack of economic data from the world’s biggest economy. “It is more driven by sentiment at this point,” he added.
Markets have been looking for more clarity on the US Federal Reserve’s rate path after Chair Jerome Powell’s remarks on Tuesday. In his speech, Powell reiterated his view that policymakers likely have a difficult road ahead as they weigh further interest-rate cuts.
Markets also got to hear from other Fed officials. Governor Michelle Bowman struck a dovish tone by saying that policymakers are in danger of falling behind and need to act decisively to bring down interest rates as the labor market weakens. By contrast, Bank of Atlanta President Raphael Bostic and Bank of Chicago President Austan Goolsbee both warned about inflation.
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In an interview to Fox Business on Wednesday morning, Treasury Secretary Scott Bessent expressed disappointment that Powell hasn’t clearly established an agenda for cutting interest rates.
“The current price action in EM FX seems to contain all the hallmarks of a risk-off episode,” said Benito Berber, chief economist for the Americas at Natixis.
Eastern European currencies led declines amid heightened tensions on NATO’s eastern flank over airspace incursions by Russia. The Thai baht also weakened as the nation’s exports grew at the slowest pace in almost a year due to the impact of US tariffs.
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In Latin America, Argentina was in the spotlight after Bessent said the US is discussing a US$20 billion ($25.8 billion) swap line with the South American nation and is ready to buy the country’s dollar bonds. The Argentine peso rose and dollar bonds jumped following the remarks.
Argentine authorities subsequently slashed repo rates, stalling the advance in the peso.
Meanwhile, an equity gauge for emerging markets rose 0.3% on Wednesday, with tech blue chips Alibaba and Tencent Holding Ltd., as well as Saudi banks, leading gains. Saudi stocks rallied the most since 2020 after Bloomberg reported foreign ownership curbs in the kingdom will be eased.
In central bank decisions, the Czech central bank left interest rates unchanged for a third meeting after policymakers expressed concerns over persistent inflation risks.
