Fed officials expect to lower rates by 75 basis points next year, a sharper pace of cuts than indicated in September’s projections. Most policymakers now see the risks to price growth as broadly balanced.
The Hugarian forint and the Polish Zloty lead gains among 23 emerging-market currencies, while the Brazilian real flipped after weakening earlier in the session. The Mexican peso also advanced against the greenback as US Treasuries dipped on the dovish shift by the Fed. The MSCI emerging-market benchmark equity index pared earlier losses.
“The projections and statement are sprinkled with dovish messaging which bodes well for high beta risk sensitive EMFX,” said Jayati Bharadwaj, FX strategist at TD Securities. “Powell will try to sound more balanced and push back against pricing of cuts in early 2024 but is unlikely to change the broad direction of travel.”
Juan G Perez, director of trading at Monex USA, said Latin America and EM more broadly should “benefit from the return to normalization in policy,” but “we will need to measure the will of other central banks to cut into interest rates like Chile and Brazil already have.”
Later on Wednesday, Brazil’s central bank is set to deliver its fourth straight interest rate cut of 50 basis points, forging ahead with a gradual monetary easing campaign as uncertainties over the global outlook fade and local inflation slows down further.
Also in Latin America, Argentine assets gained after President Javier Milei’s government unveiled the first batch of shock-therapy measures intended to revive the economy. Sovereign bonds climbed to the highest in two years, bolstered by speculation that the country may have a path to jump-starting growth — as painful as the process may be for ordinary Argentines.
Argentina’s inflation soared above 160% in November ahead of Milei’s massive currency devaluation that’s likely to accelerate price increases even further this month. From a year ago, inflation hit 160.9%, the highest level since the early 1990s when Argentina was exiting hyperinflation.
In Asia, China stocks fell more than 1%, dragging down the MSCI index, as top leaders including President Xi Jinping disappointed investors hoping to see more forceful stimulus to boost growth in the world’s second-biggest economy.
The ruling Communist Party’s annual economic work conference said building a “modern industrial system” is now its top goal. The priority for 2023 was boosting domestic demand.
