(Bloomberg) -- Emerging-market currencies edged lower on Tuesday, as traders’ focus shifts to fresh US economic data due this week that will shed light on the path of the Federal Reserve’s monetary policy.
MSCI Inc.’s gauge for emerging currencies fell by almost 0.2%. The largest laggard was by far the Mexican peso, which was heavily impacted by the advance of President Andres Manuel Lopez Obrador’s plan to overhaul the nation’s judiciary. Investors fear the proposed changes will undermine independence and erode checks and balances.
Hungary’s currency was the main outlier, rallying after the central bank decided to pause rate cuts. Policymakers in Budapest left the benchmark rate at 6.75% on Tuesday, following 15 consecutive cuts.
Traders will now keep a close eye on a slew of US economic indicators expected this week for clues on the Fed’s next moves, which could potentially trigger a rally in risk assets. The core PCE price index, the Fed’s favorite inflation gauge, and next week’s jobs report will be key to asses what’s next, said Andrés Pardo, head of Latam macro strategy at XP Investments.
The latter “could be an important catalyst for expectations regarding the size of the Fed’s September cut, which will also be important for the performance of the FX market,” he said.
Concerns over higher borrowing costs in Japan — with expectations of the country increasing its reference rate playing against changes in forecasts for Fed’s cuts — are also “pushing investors to unwind some positions,” said Jose Joaquin Prieto, business head at BTG Pactual.
China selloff
MSCI Inc.’s benchmark for developing-nation equities, which is heavily weighted towards China, dropped by 0.4% as technology stocks fell ahead of Nvidia Inc.’s results due later this week.
Chinese stocks are increasingly dragging down emerging-market equity performance amid growing signs that economic stimulus is failing to boost consumer demand.
PDD Holdings Inc., a market darling with low-priced goods that boosted sales during China’s economic downturn, reported a revenue miss and cautioned that profits must “inevitably” decline.
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