(Bloomberg) — Most emerging-market currencies weakened against the dollar on Monday as fading hopes of an imminent US-Iran deal to reopen the Strait of Hormuz sent Brent futures prices higher.
A stronger dollar and higher oil prices pressured currencies across the emerging world, with the South Korean won, the Hungarian forint and the Brazilian real among the biggest losses. The South African rand — often a measure of risk appetite — declined 0.3%.
“Middle East uncertainty continued to weigh on risk sentiment,” said Dan Pan, an economist at Standard Chartered Bank. “Market also remain extremely cautious heading into the US inflation data later this week to gauge whether inflation risks could outweigh the soft labor market data last week and tilt the Fed towards tightening.”
US President Donald Trump lashed out on Monday against Iran’s demands for war compensation as part of talks to wind down the conflict. Earlier, he signaled he’s prepared to let economic pressure on Iran build rather than launch fresh military strikes to force a reopening of the Strait of Hormuz.
Brent crude rose more than 5% on Monday to over $87 a barrel as rising tensions make it unlikely that Washington or Tehran will be able to agree to any immediate pact on Hormuz that could help end the war. The Bloomberg Dollar Spot Index edged higher, while 10-year US Treasury yields rose.
Traders are now focusing on Wednesday’s US CPI print for clues on policymakers’ next moves. Last Friday, US data showed employers unexpectedly cut jobs in July and hiring in the prior two months was revised lower, suggesting the labor market is weaker than previously thought.
“US CPI this week will be the key catalyst, dictating near-term evolution of the US dollar and therefore EM currencies,” said Wee Khoon Chong, senior Asia Pacific market strategist at BNY in Hong Kong.
Equities in the developing world, meanwhile, rose, supported by a boost from gains in Taiwanese AI-linked shares.
For the first time in at least two decades, emerging-market stock valuations have fallen to less than half those of US equities, a sign to some investors that there are increasingly attractive opportunities in developing economies.
In eastern Europe, Romania’s dollar bonds and local notes both outperformed the region after Moody’s Ratings affirmed the government’s credit score on Friday, averting a potential downgrade to junk territory.
–With assistance from Leda Alvim, Carolina Wilson and Shikhar Balwani.
More stories like this are available on bloomberg.com
