(Bloomberg) — Currencies from Central and Eastern Europe outpeformed emerging-market peers as the common currency advanced following President Donald Trump’s move to fire Federal Reserve Governor Lisa Cook.
The euro pushed higher as the dollar and long bonds in the US fell as Trump’s move to oust Cook stoked concerns over inflation and central bank independence. The Czech koruna, Polish zloty and Hungarian forint gained at least 0.3% each against the greenback. The benchmark gauges for developing-world stocks and currencies fell for the day.
“EMEA currency outperformance within EMFX reflects EUR outperformance versus USD,” said Elias Haddad, a senior strategist at Brown Brothers Harriman in London. “Political interference with the Fed’s independence and a dovish Fed are weighing on USD.”
Traders are turning their attention to inflation data scheduled for release later this week to gauge the path of monetary policy in the US after Fed Chair Jerome Powell last week opened the door to a rate cut in September.
Hungary’s forint also advanced against the dollar after the central bank maintained the European Union’s highest borrowing costs, with policymakers prioritizing currency stability to the potential risk of premature monetary easing.
Latin American currencies, meantime were mixed on Tuesday, with the Peruvian sol, Chilean peso edging higher against the greenback. Meantime, Brazil’s real and Colombia’s peso were the worst performers of the session.
Elsewhere, dollar bonds from Argentina edged higher after a massive selloff on Monday spurred by the involvement of President Javier Milei in a corruption scandal. The currency also rebounded from the weakest level in three years on Monday after the central bank raised reserve requirements for banks.
The authorities’ move aims to drain excess liquidity from the market ahead of a local debt auction on Wednesday.
Asia
Most Asian currencies sank ahead of key developments on trade between several countries the region and the US.
Trump’s extra 25% tariff on Indian imports over Russian oil is set to take effect on Wednesday. South Korea, meanwhile, is under pressure to honor its tariff deal, including a 15% levy on the nation’s goods and hundreds of billions of dollars of investment in the US. Meanwhile, China is sending a key trade negotiator to the US, in a sign that talks between the world’s biggest economies are resuming after they agreed on a truce.
Meantime, the index for emerging-market equities, heavily weighted toward Asia, snapped a three day losing streak, coming off the nearly four-year high it touched a session prior.
“Asia is more equity driven than fixed income,” said Ning Sun, a senior EM strategist at State Street Bank in Boston. “Overnight Asia equity declined across the board. I think that explained the Asian FX underperformance”
–With assistance from Brandon Harden.
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