Emerging-Market Currency Gauge Climbs to Record as Fed Rate Bets Ease
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A gauge tracking emerging-market currencies rose as much as 0.2% to a record 1,906.98 on Monday, as a weaker dollar and softer US data reduced bets on Federal Reserve tightening. A similar gauge for emerging-market equities climbed as much as 0.6%, while the Bloomberg Dollar Spot Index fell 0.2% for a third straight day. US swaps now fully price a 25-basis-point Fed rate hike by January, later than the year-end pricing seen a week earlier.
Key Facts
- US swaps are now fully pricing a 25-basis-point Federal Reserve rate hike by January, a shift from year-end pricing a week earlier.
- The Bloomberg Dollar Spot Index fell 0.2% on Monday and was heading for a third straight daily loss.
- A gauge of emerging-market equities climbed as much as 0.6% on Monday.
- US retail sales came in weaker than expected, prompting traders to reduce Federal Reserve tightening bets.
Emerging-Market Currency and Equity Gauges
A gauge tracking emerging-market currencies advanced as much as 0.2% on Monday to 1,906.98, touching an all-time high. A similar gauge for emerging-market equities climbed as much as 0.6% the same day. Gains were supported by a weaker dollar and softer US data that reduced expectations for Federal Reserve tightening. The Bloomberg Dollar Spot Index fell 0.2% on Monday, heading for a third straight day of losses.
Federal Reserve Rate Pricing
US swaps are now fully pricing a 25-basis-point Federal Reserve rate hike by January. A week ago, markets had priced the move by year-end. The shift followed weaker-than-expected US retail sales, which prompted traders to pare hawkish bets.
Strategist Views
Wee Khoon Chong, senior Asia Pacific market strategist at BNY, said emerging-market currencies are supported by a softer dollar and continued risk recovery in equities. Chong said the bank is seeing a strong rebound of foreign inflows into emerging markets, especially Asia. Galvin Chia, an emerging Asia strategist at Société Générale, said Asian currencies are riding tailwinds from softer US data last week and a softer dollar tone. Chia added that a lack of geopolitical headlines over the weekend and Brent crude prices below $90 also helped.
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Emerging-Market Currency Gauge Climbs to Record as Fed Rate Bets Ease
