In the News

Emerging-Market Currencies Rise as Markets Digest Fed Decision

(Bloomberg) -- Emerging-market currencies gained against the dollar Thursday, with the Colombian peso and the Polish Zloty leading the advance, as markets digest Federal Reserve Chair Jerome Powell’s remarks downplaying a rate cut in March.

The MSCI Inc. gauge of emerging-market currencies rebounded from earlier losses, rising 0.1% as investors unpack the Fed decision to keep rates on hold for the fourth straight meeting and Powell’s speech, which damped speculation that rate cuts would start at the next meeting in March.

Latin American currencies are among the best performers, with the Colombian peso gaining 0.7%, while the Brazilian real and the Mexican peso strengthened 0.8% and 0.6%, respectively. In contrast, the Chilean peso led losses in the region after its central bank delivered a full percentage point rate cut and its economic activity in December posted its biggest monthly decline since July 2022.

In Brazil, policymakers cut its key interest rate by half a percentage point, while Chile’s central bank slashed rates by a full point. Colombia, on the other hand, unexpectedly maintained the pace of monetary policy easing with a second straight quarter-point cut when many had expected a half-point reduction.

“While digesting that the Fed may not turn to stimulus- driven cuts anytime soon, the rest of the world is indeed trying to make things more accommodative,” said Juan Perez, director of trading at Monex USA. “Overall, the buck’s safe-haven appeal has diminished and there is a renewed sense of risk appetite.”

Emerging-market stocks gained as economic stimulus from China outweighed a potential hit to risk appetite over the timing of the Federal Reserve’s monetary easing this year. Chinese shares rallied, led by tech firms after authorities vowed to maintain the strength of government spending with a focus on the industry.

Egypt’s dollar bonds and stocks rallied after Boomberg News reported that the International Monetary Fund has extended talks with the North African nation for a potential $10 billion deal along with new partners.

Hungary’s forint gained 0.2% against the euro, reversing a drop earlier in the session, after Hungarian Prime Minister Viktor Orban lifted his veto on a €50 billion ($54 billion) financial aid package for Ukraine. Strategists have looked to the European Union summit as a reference point for their forecasts after the tensions with the EU triggered a selloff in the Hungarian currency last week.

Reporting by Leda Alvim and Nicolle Yapur, With assistance from Andras Gergely

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