Weak U.S. Economic Data Continues to Boost Emerging Market Currencies
Weak U.S. economic data has raised concerns about the economic situation and strengthened speculation about interest rate cuts by the Federal Reserve, leading to a continued rise in emerging market currencies. Data shows that U.S. service sector activity has contracted for the first time, and private sector job growth has fallen to a two-year low. Emerging market currencies are more attractive due to high interest rate differentials, with the MSCI Emerging Markets Stock Index rising by 1.2%. The bond markets in Brazil and South Africa also performed strongly, despite Brazil facing fiscal issues
According to Zhitong Finance APP, on Wednesday, the economic data released by the United States raised concerns about the economic situation and intensified speculation about the Federal Reserve's imminent interest rate cuts, leading to a continued rise in emerging market currencies.
Data showed that the activity of U.S. service providers entered contraction territory for the first time in nearly a year last month, causing the MSCI currency index to rise, closing up 0.1% on the day. A report released earlier that day by ADP Research also indicated that private sector employment growth in the U.S. had fallen to its lowest level in two years.
Marco Oviedo, a strategist at XP Investimentos, stated: "The data indicates a weakening outlook for the U.S. economy, a slowdown in labor growth, and a decline in service sector activity. This has led to bets that the Federal Reserve may cut interest rates, making emerging market currencies more attractive, as some of these currencies still offer high spreads."
He added that U.S. employment data later this week would provide some clarity.
After the conclusion of the South Korean presidential election, the Korean won became one of the best-performing currencies in the emerging market currency index. Newly elected President Lee Jae-myung promised to revitalize the South Korean economy, which has been threatened by tariffs from U.S. President Donald Trump.
The MSCI Emerging Markets Stock Index rose 1.2%, reaching its highest level in two weeks. Meanwhile, global stock markets hit a record high for the first time since February.
In the credit market, Brazil is issuing $2.75 billion in dollar bonds, marking the second bond issuance in less than six months, as investors seeking diversified investments have driven up emerging market assets. Although assets in this largest Latin American economy have risen this year, the country's increasingly severe fiscal issues continue to weigh on market sentiment. Last Friday, Moody's downgraded Brazil's credit outlook from positive to stable.
The yield on South Africa's 10-year government bonds fell below 10% for the first time in over three years, as investors bet that the country's third attempt to seek budget support would be successful. Following South African Finance Minister Enoch Godongwana's submission of a revised budget to Parliament last month, the country's bond prices rebounded.
The Polish central bank kept interest rates unchanged as expected, with investors focusing on central bank governor Adam Glapinski's upcoming speech after the key presidential election. The zloty fell against the euro, while the WIG20 index rebounded
