(Bloomberg) -- Latin American currencies were the worst performers in emerging markets on Thursday as domestic risks coupled with a stronger dollar and higher US yields continued to weigh negatively on the market.
MSCI Inc.’s broad gauge of emerging-market currencies remained in positive territory on the back of gains in the Malaysian ringgit and Chinese renminbi. Latin America, where carry trades played a large role in gains earlier in the year, was by far the worst hit region after new GDP data pointed to a stronger US economy. The Mexican peso and the Brazilian real led losses.
“Firmer economic data out of the US drove US real yields higher, supporting a strengthening of the US dollar,” said Gilberto Hernández-Gómez, a strategist at BBVA in New York. “This weighed a bit on Latam FX while commodities provided some counterbalance keeping CLP, PEN and COP depreciation more capped.”
US gross domestic product rose an annualized 3% in the second quarter, up from the previous estimate of 2.8%, the government said Thursday. The numbers boosted the case for only gradual rate cuts starting next month.
Political concerns in some of the region’s major economies also exacerbated the move. In Brazil, the confirmation of Gabriel Galipolo as central bank head brings back fears over the bank’s independence amid endless fiscal concerns, said Benito Berber, chief Latin America economist at Natixis.
While in Mexico, the imminent passing of a controversial judicial reform and the strengthening of the ruling party’s majority in Congress have also impacted the peso’s performance.
Still, “we see the MXN reacting more to the volatility coming out of the U.S. regarding activity and monetary policy,” Bradesco BBI’s strategists Rodolfo Ramos and Juan Ponce write in a note on Thursday.
The Mexican peso is down more than 2.5% against the greenback this week. JPMorgan Chase & Co. said the currency’s three-month slide has made it a bargain for investors willing to stomach the market turbulence.
Meanwhile, emerging market stocks posted a third day of losses on waning optimism about the AI-driven tech rally. The MSCI Emerging Markets Index dropped as much as 0.7% Thursday, but it’s still on track to a third week of gains. The technology sector is following Nvidia Corp., which posted strong quarterly results but presented a weaker-than-expected outlook.
Elsewhere, the cost of borrowing Turkish liras overnight in the offshore market jumped on Thursday, as traders exited so-called carry positions amid a steady decline in the currency.
Fitch Ratings downgraded the island nation of Maldives on Thursday, citing an increased risk of default, as bond investors dumped the country’s debt that has totted up the worst monthly performance in emerging markets.
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