(Bloomberg) — Emerging-market currencies reversed earlier gains on Tuesday, led down by the Chilean peso, as traders continue to tweak their bets on US interest rate cuts this year.
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An index of developing currencies traded flat, after swinging between gains and losses all day. Colombia’s peso and the Brazilian real advanced as much as 0.5% against the dollar, some of the best performances in a basket of 23 EM exchange rates tracked by Bloomberg.
After a rout in April, a drop in volatility and other factors “have once again turned conducive for carry trades, which is providing a boost for the well-known high yielders in the LatAm space,” said Simon Harvey, head of foreign-exchange analysis at Monex Europe Ltd. in London.
The dollar traded mixed against its Group of 10 peers, while Treasury 10-year yields slipped about 5 basis points.
Investors largely shrugged off remarks form Minneapolis Fed President Neel Kashkari, who said recent inflation data raised questions about whether monetary policy is restrictive enough to return price growth back down to the central bank’s 2% target.
Read More: Fed’s Kashkari Does Not Rule Out Rate Hikes If Needed: TOPLive
Currency Laggards
Chile’s peso slipped back from a three-month high, while its Mexican counterpart also fell, reversing gains made earlier in the day.
Thailand’s baht and Indonesia’s rupiah similarly took a leg down. The move came on the back of a weaker Japanese yen, which slid as US officials called for caution on currency interventions.
Non-Japan Asia currencies are “back under pressure as the ‘shock’ treatment from the BoJ last week is wearing off,” Harvey added.
Elsewhere in Turkey, officials have been holding talks in recent weeks about easing restrictions on offshore currency swaps, according to people with knowledge of the conversations, a move that would meet a key demand from foreign investors interested in entering the market. Turkey’s five-year credit default swaps fell on the back of the report.
Meanwhile, a EM equity index — which is heavily weighted to Asia — rose for a fourth day, led by advances of companies listed in Hong Kong, China and India. The gauge is up some 4.4% this year and is trading at its highest level since June 2022.
In credit markets, the Philippines said it was selling as much as $2 billion from a two-part dollar sale on Tuesday, marking its first foray into public debt markets this year.
Global funds continued to pile into India’s $1 trillion sovereign-bond market ahead of the country’s addition to global debt indexes. JPMorgan Chase & Co. announced last year it will add Indian government debt to its benchmark emerging-market index starting in June, a milestone for Asia’s third-largest economy.
–With assistance from Srinivasan Sivabalan.
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