Hawkish Central Banks Fuel Biggest Currencies Gains: EM Review

The Mexican peso led gains among emerging-market peers, strengthening 4.1% against the greenback over the week, boosted in part by a unexpected interest-rate hike on Thursday. Brazil’s real and Chile’s peso were the next biggest gainers as their respective central banks released distinctly bullish minutes. In general, global markets favored risky assets after Federal Reserve Chair Powell said the monetary authority won’t raise rates preemptively.

Highlights

  • President Biden celebrated a tentative deal with a group of Democratic and Republican senators on a $579 billion infrastructure plan, saying it would create millions of jobs while fulfilling a major piece of his economic agenda
  • Argentina will make a $430 million payment to the group of wealthy government creditors known as the Paris Club, avoiding a default after missing a $2.4 billion maturity last month
  • Chinese banks’ stockpile of foreign-currency deposits has surpassed $1 trillion for the first time, creating an opportunity for Beijing to allow greater freedom for capital to flow out of the country
  • Hungary’s central bank raised its benchmark rate for the first time in a decade to curb the European Union’s fastest inflation and pledged monthly hikes as long as the price-growth outlook warrants
  • World powers and Iran failed to revive a nuclear deal that would lift U.S. sanctions on the oil-rich Islamic Republic in exchange for it scaling back its atomic activities
Asset moves as of 4:20 p.m. in

New York

Weekly
MSCI EM stocks index+1.4%
MSCI EM FX index+0.2%

Bloomberg Barclays global EM local-currency bond index

(Up to Thursday)

-0.1%

Asia

  • Bank of Korea Governor Lee Ju-yeol gave his clearest signal yet that interest-rate hikes are in the pipeline, calling for a policy normalization this year that he said shouldn’t be characterized as a tightening of monetary conditions
  • China’s central bank boosted its short-term cash injection for the first time since March. The move fueled the biggest slide in the overnight repurchase rate since April
  • The Philippine central bank left its key rate on hold and pledged to keep policy loose as long as necessary to support the economic recovery

EMEA

  • The U.S., the U.K. and the European Union sanctioned dozens of Belarusian individuals and organizations on Monday in a coordinated response to last month’s forced landing of a Ryanair flight and the government’s ongoing crackdown on President Alexander Lukashenko’s political opponents
  • South Africa’s inflation rate rose to a 30-month high in May, but the nation is unlikely to bring forward an interest-rate hike as the central bank had forecast a second-quarter spike in price growth
  • Saudi Arabia gave a first glimpse of the ambition behind the merger of two of its pension and insurance funds with a plan to rival the world’s largest investors
  • Mozambique will accept regional and broader assistance to fight an Islamic State-linked insurgency raging in the north of the country, but not at the cost of mortgaging the African nation’s sovereignty, President Filipe Nyusi said

LatAm

  • Traders are betting Mexico’s central bank will continue to fight inflation aggressively after it unexpectedly increased interest rates following a pickup in prices, but they may have overreacted, Deputy Governor Gerardo Esquivel said
  • Peru is in the grip of a constitutional crisis as the departure of a key election official creates a new obstacle to naming the next president. The paramount issue for the nation is job creation, according to economists advising Pedro Castillo, the nation’s probable next president
  • Argentine stocks fell Friday after index provider MSCI Inc removed their emerging-market status, downgrading them to “standalone” due to the country’s capital controls
  • Brazil’s central bank raised its 2021 economic growth forecast despite a resurgence in coronavirus cases and concerns about above-target inflation. Meantime, a poll carried out more than a year before the October 2022 presidential vote showed former President Luiz Inacio Lula da Silva would beat incumbent Jair Bolsonaro in the first round of elections.

This story will be discontinued from July 5. Please see EM Week Ahead instead.

©2021 Bloomberg L.P.

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