(July 3): Most developing-world currencies rallied on Thursday after weaker-than-expected US employment data prompted investors to scale back bets that the Federal Reserve will raise interest rates as soon as this month.
Hiring slowed sharply in June, easing concerns that persistent economic strength would force the Fed to tighten policy. The shift provided a boost to risk assets and led the US dollar to slump 0.5%, the most since early May.
The South African rand was among the day’s best performers, climbing about 1% against the dollar, with higher gold prices providing additional support. Hungary‘s forint also gained about 0.9%, while the Korean won advanced 0.8%. The dollar’s decline offered relief to emerging-market currencies, which have borne the brunt of the greenback’s strength in recent months.
“The payrolls report has reduced the odds of another Fed rate hike, which should take some steam out of the dollar rally, making this more than just a one-day move,” said Greg Lesko, a portfolio manager for EM at Deltec Asset Management LLC. “A lot of the recent weakness in EM can be traced to dollar strength. Absent that, local issues become the dominant driver.”
A stronger labor-market report would have given the Fed greater scope to focus exclusively on inflation, strengthening the case for a rate hike. Instead, signs of continued softness reinforce expectations that policymakers can afford to remain gradual, particularly as falling energy prices help ease inflationary pressures.
“This is a good print for emerging market currencies as it certainly takes out the urgency on the Fed,” said Alvaro Vivanco, emerging-market strategist at Wells Fargo Securities.
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Latin American currencies also reacted positively to the data, with most major currencies trading higher immediately after the release. However, part of the rally faded later in the session. The Brazilian real and Chilean peso ended little changed, while the Mexican peso, Colombian peso and Peruvian sol posted only modest gains.
Meanwhile a gauge for developing world equities fell about 2.2% amid an AI rout in South Korea. Memory-chip makers SK Hynix Inc and Samsung Electronics Co lost a combined US$290 billion ($374.41 billion) in value to drive a 7.9% slump in South Korea’s Kospi index as investors fretted about the possibility of a capacity glut in the sector. Taiwan Semiconductor Manufacturing Corp dropped 1.6%. Chinese names also slid, with Yangtze Optical Fibre & Cable and Skyverse Technology Co Ltd shedding 22% and 16% respectively.
Elsewhere, Senegal said it isn’t pursuing a sovereign debt restructuring as it continues negotiations with the International Monetary Fund. Congo is drawing up plans for its first stock exchange as it seeks to attract more investment to an economy that’s benefiting from soaring demand for battery minerals.
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Meanwhile, power producer company Genneia SA filed for an initial public offering in New York, trying to become the first Argentine company to IPO in the US in at least seven years.
Uploaded by Isabelle Francis
