In the News

EM Currencies Extend Slump as Markets Brace for Rate Decisions

(Bloomberg) -- Emerging-markets currencies dropped for a fifth straight day, extending the longest losing streak since November as traders prepare for a barrage of monetary policy decisions.


The MSCI index of developing-world currencies fell as much as 0.2% before closing down 0.1% ahead of the Bank of Japan’s rate decision on Tuesday, in which the country could opt for tightening monetary policy for the first time in over a decade. if they do, markets will be turning to the yen as a new safe haven apart from the US dollar, said Juan Pérez, director of trading at Monex USA.

“What we need in currencies is volatility and this week we are getting it,” Pérez said.

Central banks from around the globe — including the US, the UK, Switzerland, Brazil, Mexico, Colombia, Turkey and Indonesia — will announce interest rate decisions this week. On Wednesday, traders will be closely looking for signs of the Federal Reserve’s intent to lower borrowing costs before further indications of economic pain.

Fed, BOJ to Lead Rate Decisions for Half of the World: Eco Week

“The market could be tightening positions so it’s not too exposed to the macro information,” said José Joaquin Prieto Jaramillo, business head at BTG Pactual in Bogota. “After the Fed’s meeting, short and medium term portfolio management can change substantially.”

Latin American currencies fell led by the Mexican peso, which posted its worst daily drop in a month after US presidential candidate Donald Trump threatened to impose 100% tariffs on cars made in Mexico by Chinese companies. The Colombian peso reversed earlier gains and joined the rest of the region’s currencies in negative ground.

Equities, meanwhile, extended a rebound from the worst start to a year in a decade on signs of economic gains in China, Fed officials signaling a dovish tilt, and improvements in Pakistan to Egypt. While the prospects for continued gains were uncertain, some investors have flagged cheap emerging-market valuations and a brighter earnings outlook as cause for optimism.

The MSCI index advanced more than 0.3% Monday, trimming the losses from Friday after US producer-price data that pointed to inflation pressures that may slow the Fed’s pivot toward easing monetary policy.

Monday’s gains were driven by tech stocks, including Taiwan Semiconductor Manufacturing Co., as well as mainland China and Hong Kong-listed companies. China’s factory output and investment grew more strongly than expected at the start of the year, data showed.

In the developing world, the central banks of Turkey, Indonesia, Pakistan, Brazil, Colombia, Russia and Mexico will announce policy decisions. Pakistan is in talks for a fresh loan from the International Monetary Fund with traders waiting for an announcement on a staff-level agreement. The country’s central bank held the key interest rate at a record high for a sixth straight meeting.

Egypt’s pound was among the best performers Monday, rising 1.4%. The European Union became the latest global power to pump hard-currency flows into the debt-distressed nation after it pledged a €7.4 billion ($8.1 billion) aid package.


Reporting by Srinivasan Sivabalan and Nicolle Yapur

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