(Bloomberg) -- Emerging-market currencies edged lower, while equities rose for a third straight session as global markets remained on edge with voters heading to the polls across the US in a tight presidential election that will shape the future of economic policy.
MSCI’s index for emerging currencies edged lower, falling 0.1% with Latin American currencies leading losses. The Mexican peso weakened to a session low, leading losses across emerging markets, after a strong ISM services data fueled bets that the Federal Reserve may pause its easing cycle in December. The peso, which has suffered from Trump’s talk of imposing tariffs,
is also being closely monitored ahead of the vote count. Traders are bracing for what’s set to be a volatile session as voters decide between Donald Trump and Vice President Kamala Harris. Recent polls suggest that the race is extremely tight, with Harris having a slight edge nationally and in some swing states.
“There is no other way to treat the current situation, but with tremendous caution,” said Juan Perez, director of trading at Monex USA. “Latin America will need to see election results to adjust and prepare for either American continuity or potential for protectionism.”
In Asia, the South Korean won lagged most peers as data showing decelerating inflation supported bets on future rate cuts by the Bank of Korea. At the same time, a gauge of expected swings in the offshore yuan climbed to a record high on Tuesday. China’s top legislative body is holding a highly anticipated meeting in Beijing this week, with investors watching for any approval of fiscal stimulus to revive the slowing economy. Meanwhile, emerging stocks advanced by 0.8%, boosted by gains in stocks listed in Hong Kong and Taiwan.
Markets are “probably mostly positioned for volatility given the uncertainty,” said Marco Oviedo, a strategist at XP Investimentos in Sao Paulo. In a scenario of a Harris win, Oviedo said the MXN, COP and BRL could rally. On the other hand, a Trump victory should weaken those currencies.
“Vol is the trade,” Oviedo added. In a busy week with US elections, investors also brace for a series of central bank decisions that may amplify market swings. The Fed is widely expected to dial down the pace of easing to a quarter-point on Thursday. Markets will then turn their attention to Jerome Powell’s press conference, where he’ll give details on the central bank’s interest-rate path.
Across emerging markets, money managers will monitor rate decisions across Poland, Romania, Czech Republic and Brazil throughout this week.
In primary debt markets, China is planning to sell dollar bonds in Saudi Arabia next week, its first debt issuance in the US currency since 2021.
