(Bloomberg) — An index for emerging-market currencies edged higher on Monday as traders weighed the interim peace deal between the US and Iran against uncertainty from the Federal Reserve’s upcoming policy meeting.
Currencies from Chile and Poland — nations that rely on crude imports — were among the biggest gainers and jumped to a session high as Brent oil plunged below $80 per barrel following a report that the deal would allow Tehran to start selling oil immediately. The MSCI equity gauge gained for a third day, nearing a record level propelled by an advance in technology shares.
Risky assets across the world have seen a relief rally as the deal, expected to be signed on Friday, would extend a ceasefire for two months and resume traffic along the waterway, whose closure sent oil prices surging and stoked fears over the global economy. The excitement is starting to wane, though, as traders turn cautious ahead of Kevin Warsh’s first meeting as chairman of the Federal Reserve.
“An interim agreement reached between US and Iran is positive for EM assets, but the degree of Fed hawkishness is still a key constraint on broader portfolio changes,” JPMorgan Chase & Co. strategists led by Anezka Christovova wrote in a note Tuesday.
Traders and economists expect the Fed will keep interest rates on hold, but Warsh is caught between pressure from President Donald Trump to lower borrowing costs and inflation accelerating at the fastest pace in over three years. Under Warsh’s tenure, the Fed is likely to overhaul its communication with the market as he’s dropped hints that point toward less talk.
In Latin America, the Colombian peso rallied as local markets reopened following a Monday holiday. The Brazilian real, meantime, sank as a Tuesday poll showed President Luiz Inacio Lula da Silva beating conservative candidate Flavio Bolsonaro in a runoff. Mexico’s peso was up 0.2%.
In emerging Europe, Hungary’s forint extended gains against the euro for a fourth day. The rally could push the currency past 300 per euro as Hungary moves toward its planned accession to the common currency area, according to Ben Ford, a strategist at Macro Hive. The forint traded around 350 per euro.
Dollar bonds from Bolivia advanced as blockades in the country start to recede and after a local Treasury official told investors foreign-exchange rate unification and a deal with the International Monetary Fund are coming soon. Bolivian notes due in 2031 jumped 2.3 cents to 100.8 cents on the dollar, according to indicative pricing data collected by Bloomberg.
In stocks, technology shares SK hynix Inc. and Taiwan Semiconductor Manufacturing Co., were the biggest contributors to the advance in the EM equity gauge.
Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA, sees more room for the stock rally to extend in countries like India that were hardest hit by higher oil prices. Indian stocks rose 0.6%, gaining for the third day, but remain 8.2% lower for the year.
“There remains some uncertainty around the final details of the deal,” De Mello said. “Oil has declined from its highs but is still significantly higher than pre-war levels.”
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