Emerging currencies rise to record high as Fed hike bets ease
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US swaps are now fully pricing a 25-basis-point Fed rate hike by January 2027.
PHOTO: REUTERS
Emerging-market currencies rose to a record high as bets on a Federal Reserve interest rate hike cooled, spurring demand for risk assets.
A gauge tracking emerging-market currencies advanced as much as 0.2 per cent to 1,906.98 on Aug 17, touching an all-time high, while a similar gauge for equities climbed as much as 0.6 per cent.
Gains were supported by a weaker dollar as softer US data reduced expectations for Fed tightening.
“Emerging-market (EM) currencies are supported today, primarily driven by softer dollar and continued risk recovery in equities,” said Wee Khoon Chong, senior Asia Pacific market strategist at BNY.
“We are seeing a strong rebound of foreign inflows into EM especially Asia.”
US swaps are now fully pricing a 25-basis-point Fed rate hike by January 2027, a shift from a week ago when markets had priced the move by year-end, as weaker-than-expected US retail sales prompted traders to pare hawkish bets.
The Bloomberg Dollar Spot Index fell 0.2 per cent on Aug 17, heading for a third straight day of losses.
“Asian currencies look to be riding the tailwinds of softer US data last week and the softer USD tone into the start of this week,” said Galvin Chia, an emerging Asia strategist at Societe Generale.
“The lack of geopolitical headlines over the weekend and Brent prices below US$90 have also likely helped, compounded by what seems to be late stages of quieter summer time markets.” BLOOMBERG
