The MSCI index for currencies closed at its highest level in nearly two months, with the Chilean peso leading gains as copper prices rallied. The Mexican peso also jumped as the US dollar retreated.
“For the moment, we remain fairly optimistic on LatAm currencies,” said Benito Berber, chief Latin American economist for Natixis. “In the coming days EM will be influenced by central bank decisions in each country.”
Emerging-market stocks extended gains for a fourth-straight session, and are up nearly 4% this month.
A measure of underlying US inflation, the so-called core consumer price index, cooled, snapping a streak of three above- forecast readings. Investors are raising bets for rate cuts as soon as September.
“It was very important to see the probability of a cut in September at 60%, practically eliminating the chances of Fed officials looking to raise rates for the remainder of the year, at least for now,” said Juan Perez, director of trading at Monex USA.
The Fed needs to be patient as it awaits more evidence that high rates are curbing inflation, Fed Chair Jerome Powell had said on Tuesday.
The Brazilian real missed out on the rally, hit by the ouster of the top executive from state-owned oil company Petrobras late on Tuesday, though the broader risk-on sentiment helped it trim losses. Brazil’s sovereign bonds also trailed most developing nation peers after the news, which sparked concern about government interference.
“It has obviously been a strong day generally for risk assets but in that context Brazil has underperformed a little,” said Graham Stock, senior EM sovereign strategist at RBC BlueBay Asset Management.
Elsewhere, the yuan received a boost on a report that China is considering a proposal to have local governments across the country buy millions of unsold homes to boost the nation’s property market.
“The long-awaited China rally is finally happening, with the MSCI China Index up 28% since its January lows and positive momentum strengthening in May,” said Emre Akcakmak, a senior consultant at East Capital International AB in Dubai. “Given China’s significant weight in EM indices, the positive mood is having spillover effects on emerging markets as an asset class.”
