May 6 (Bloomberg) — Emerging-market currencies extended their biggest four-day rally of 2024 as traders cautiously hiked wagers for interest rate cuts from the Federal Reserve this year, fueling demand for riskier assets.
The benchmark gauge for developing-nation currencies rose 0.2% Monday, bringing its advance in the past four sessions to 0.8%. Currencies in Chile and Mexico led the gains, with the former hitting its strongest level in more than three months as copper climbed.
An index for developing market stocks added 0.5% to the highest in almost two years. The gains were led by stocks from India, China and Saudi Arabia.
“EM markets are certainly welcoming the idea that the Federal Reserve will eventually join its EM-central banking counterparts in aiding the financial environment some,” said Juan Perez, director of trading at Monex USA.
With the beginning of a light week for US economic data, investors waded through remarks from some Fed officials. Fed Bank of Richmond President Thomas Barkin said he expects high rates to slow the economy further and cool inflation to the 2% target. His New York counterpart John Williams said there will eventually be rate cuts — but the decision on when will depend on the totality of the data.
Elsewhere, Israel’s shekel pared losses against the greenback after Hamas said it agreed to a cease-fire proposal by Qatar and Egypt. The currency weakened as much as 1.2% earlier in the day as the Israeli forces told civilians to move out of parts of Rafah, a possible prelude to a long-expected attack on the Gazan city. Israel rejected a statement from Hamas that it had accepted a cease-fire proposal to end the fighting in Gaza.
In Latin America, Panama’s sovereign bonds were the biggest gainers on Monday after Jose Raul Mulino won the presidential election and pledged a “pro-private enterprise” government in his victory speech.
Ratings Watch
Investors also digested a swath of positive rating moves to some of the biggest emerging economies. Late on Friday, Turkey’s sovereign rating was upgraded by S&P Global Ratings, which cited the government’s return to more orthodox economic policies.
“S&P’s credit rating upgrade over the weekend and no upside surprise to the April inflation print, should further improve the sentiment towards Turkish assets,” Deutsche Bank said in a note Monday. “We expect a significant acceleration in the performance of local bonds over the summer months.”
Egypt’s credit rating outlook was raised to positive from stable by Fitch Ratings, after the North African nation secured an international bailout. Egypt’s dollar notes due in 2047 were trading at the highest in more than three weeks.
Nigeria’s credit rating outlook was also lifted by Fitch to positive, as reform progress since President Bola Tinubu’s assumption of power last year has been faster than anticipated.
Elsewhere in emerging markets, Hungary’s forint received some support since late April when S&P kept the credit rating and outlook steady for the Central European country, despite budgetary pressures. Slovakia also escaped a second downgrade in four months after Prime Minister Robert Fico’s government pledged to reduce the fiscal shortfall.
