(Bloomberg) — The gauge for emerging-market currencies and stocks declined, posting the worst week since August 1 as traders assess the Federal Reserve’s interest-rate-cut outlook and US President Donald Trump’s latest round of tariffs.
MSCI’s EM currency index slipped 0.2%, a seventh straight session of losses. A similar gauge tracking developing-nation stocks slumped 1.4% on Friday.
Risk appetite for emerging-market assets took a hit this week as mixed signals from Fed officials and stronger-than-expected US economy data clouded the outlook for the future pace of rate cuts. A Bloomberg spot dollar index notched its best week since the beginning of August.
A fresh round of US tariffs on pharmaceuticals, heavy trucks and furniture as well as the possibility of a US government shutdown also weighed on sentiment.
There are “a plethora of risks,” said Michael Grobler, a fixed-income strategist at Ashburton Fund Managers Ltd. “It can be seen as a muddle-through scenario restraining risk appetite but not necessarily leading to a reversal in larger trends.”
Friday’s US data — which showed inflation under control and consumers remaining resilient — offered some relief to developing currencies. Next week’s data on US jobs market will be critical for traders as they may need to reassess how many Fed cuts to price in for the remaining meetings in 2025.
“Markets will try to trade international risk with a more cautious stance without missing appealing emerging-market opportunities,” according to Citigroup analysts including Luis Costa. “Going forward, scrutiny on a potential continuation of labor-market deceleration will likely increase.”
Latin American currencies outperformed peers as the Mexican peso and Brazilian real climbed. Eastern European currencies like the Czech koruna and Hungarian forint also gained.
The Chilean peso rose as much as 0.5% before erasing gains. Minutes to the Chile central bank’s last policy meeting revealed several board members said that inflation threats had increased, possibly suggesting less room for new interest-rate cuts. The Thai baht was among the biggest decliners, dropping 0.4% after a minister said that the currency’s rally was detrimental for the nation’s exports.
Meanwhile, a Bloomberg Asia emerging-market index tracking large and mid cap price returns slid 1.5%, its biggest drop since April. Taiwan Semiconductor Manufacturing Co. and Alibaba Group Holding Ltd. were among companies whose shares slid the most. Asian health-care companies also initially plummeted after the Trump administration said it would impose a 100% tariff on branded and patented drug imports from companies not producing in the US.
–With assistance from Bhaskar Dutta, Matthew Malinowski and Wojciech Moskwa.
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