(Bloomberg) -- Emerging market currencies are rising on Monday, after disappointing retail sales data in the US weighed on the outlook for the world’s largest economy.
US retail sales rose by less than forecast in February and the prior month was revised lower to mark the biggest drop since July 2021. Together with other recent reports, the data bolstered the case for the Federal Reserve to cut rates more aggressively than expected in the months ahead, lifting the
currencies of developing countries while bruising the dollar.
A gauge of emerging market currencies was recently up 0.2%, while the US dollar retreated to its lowest levels in four months on an intraday basis.
“It’s a respite from the pessimism seen last week,” said Juan Perez, director of trading at Monex USA. “A few weeks ago, markets seemed convinced that no cuts would be required by the Federal Reserve, and now the bets have increased because the chances of a recession are also on the minds of every investor and economist.”
Some Latin American currencies received an additional boost as commodity prices rose following China’s pledge to enact measures that would stimulate domestic consumption. The news also supported emerging market stocks, which have climbed nearly 3% in March, on track for the largest advance in six months.
After a rally fueled by excitement over homegrown artificial intelligence startup DeepSeek, investors have focused on China’s plans to revive consumption. Nascent signs suggest domestic demand is picking up, with retail sales and industrial output rising faster-than-expected for the January-February period.
The latest efforts reinforce China’s priority to boost consumption “could help to broaden out the momentum we have seen in China stocks this year, primarily led by tech,” said Charu Chanana, chief investment strategist at Saxo Markets. “An improving earnings outlook could see broader participation from consumer, travel and health-care names,” she added.
Chinese shares have largely shrugged off the raft of economic data published Monday, though sentiment in the broader emerging market space has improved amid views that President Donald Trump’s tariff may not be as severe as initially expected. A slump in the greenback in March also bolstered emerging-market stocks and currencies, with the MSCI EM currency index rising by 1% this month, the largest monthly gain since September.
“We have seen an unexpected fiscal stimulus in Europe that affects military, infrastructure and even the green economy,” said Luis Estrada, a strategist at RBC Capital Markets. “The
surprise effect has shifted investments out of USD and into Europe. This has moved the DXY and pulled investments to rebalance by reducing USD exposure and adding global exposure
including emerging markets.” Laggards in credit markets were led by Kenya, after Kenyan authorities and International Monetary Fund officials “reached an understanding” not to proceed with the ninth and final review of its $3.6 billion program.
By contrast, Panama dollar bonds were the best performers in emerging markets on Monday after First Quantum Minerals told lawyers to suspend its arbitration cases against the country.
