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Emerging-market currencies are trading mixed after the United States Federal Reserve decided to keep rates steady, as expected, with Asian names gaining and the rest of the asset class edging lower.
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The Federal Open Market Committee voted 10-2 Wednesday to hold the benchmark federal funds rate in a range of 3.5 per cent-3.75 per cent. Governors Christopher Waller and Stephen Miran dissented in favour of a quarter-point reduction.
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In a post-meeting statement, policymakers said “job gains have remained low, and the unemployment rate has shown some signs of stabilization,” though Jerome Powell refrained from signalling any imminent resumption of rate cuts amid the strengthening economy.
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An index of emerging market currencies remains on track for a fifth day of advances, rising 0.1 per cent. A gauge of the dollar’s strength continued to rebound after the decision, a partial recovery after hitting its lowest level since 2022. Meanwhile, an EM stock index rallied 1.5 per cent, powered by Asian chip-makers.
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“The Fed’s statement is marginally hawkish, particularly with its mention of ‘signs of stabilization’ in the labour market and an upgraded growth assessment,” said Benito Berber, chief Americas economist at Natixis. “This has resulted in a limited sell-off in LatAm FX.”
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Earlier, emerging market currencies dipped after U.S. Treasury Secretary Scott Bessent poured cold water on rumours that the U.S. is going to intervene in currency markets to support the yen. When asked about potential intervention in the Japanese currency, Besset said “absolutely not.”
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The remarks caused “a tactical retracement of several high-carry currencies, such as the COP and the MXN,” said Pedro Quintanilla-Dieck, a strategist at UBS.
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Speculation about yen intervention coupled with U.S. policy risks have been pressuring the dollar this week, reasserting the case for investors pulling away from U.S. assets. At the same time, Trump’s relaxed tone about the dollar selloff yesterday fuelled speculation the U.S. currency is at the start of a longer-term decline.
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“We anticipate this trend will continue,” said Luis Costa, head of emerging markets strategy at Citigroup Inc. EM currencies that are set to benefit from dollar weakness include South Africa’s rand, Brazil’s real and South Korea’s won.
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Africa Debt
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Dollar bonds issued by Kenya and Angola were outperforming emerging-market peers on Wednesday.
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Moody’s Ratings upgraded its assessment of Kenya’s debt, citing a reduced risk of default in the near-term. The upgrade comes as Kenya prepares another eurobond sale, with plans to raise as much as US$2 billion. Fitch Ratings last week held its rating at B- with a stable outlook.
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