(Bloomberg) -- Emerging-market currencies held gains after Federal Reserve Chair Jerome Powell said policymakers could move cautiously as they lower interest rates.
The South Korean won rebounded on Wednesday as President Yoon Suk Yeol rapidly reversed his martial law declaration.
An MSCI Inc. gauge for developing-world currencies finished the session 0.1% higher, while emerging equities hit the highest level in three weeks. Speaking in a panel in New York Wednesday, Powell also said there’s no reason solid economic conditions in the US can’t continue.
“The Fed is still expected to lower rates next week, but there may not be necessarily a consensus on it — and it might also be a hawkish cut,” said Juan Perez, director of trading at Monex USA.
The won climbed after the president sought to quell a political furor, with investors now monitoring the impeachment motion against him. Bank of Korea Governor Rhee Chang-yong downplayed the impact on the economy and said policymakers are unlikely to cut interest rates in response to the latest developments.
Won weakness “is likely to subside as policymakers stem the selloff, either through some jawboning or direct intervention,” said Mark McCormick, global head of FX and EM strategy at TD Securities in Toronto. “But the macro setup isn’t great for the won, given the links to EM Asia like the Chinese yuan. These currencies have been reeling from the broader dollar strength,” he added.
Colombia’s dollar bonds erased gains and five-year CDS widened more than 4 basis points after the departure of Finance Minister Ricardo Bonilla. The currency market was already closed when the news hit.
In credit markets, Panama’s dollar bonds extended weekly losses as the pension reform proposed by the government faces setbacks. Latin American corporates including Vista Energy Argentina to Santander Mexico tapped global debt markets.
Investors yanked a record $246 million from the Vanguard Emerging Markets Government Bond ETF on Tuesday. The $5.2 billion fund — known by its ticker VWOB — is the largest ETF
tracking emerging-market government bonds.
