Emerging Currencies Post First Weekly Drop in Four After Fed

  • Chile’s peso leads emerging market losses as copper falls
  • MSCI stocks, currency gauges steady after Thursday’s retreat

Emerging-market currencies continued the week’s retreat as a tighter Federal Reserve interest-rate policy curbed the appeal of riskier assets. Chile’s peso led declines as copper fell, while Poland’s zloty topped gains.

“The story now is the U.S. versus the rest of the world,” said Simon Quijano-Evans, a strategist at Legal & General Group Plc in London. While emerging market currencies are feeling the spillover now, a bigger risk would take shape if U.S. President-elect Donald Trump fails to spur price growth, he said. “In that case, the big challenge will be to see whether any drop in equities will pass through into weaker emerging markets in general.”

  • MSCI Emerging Markets Currency Index falls 0.3 percent after biggest drop in a month on Thursday
  • MSCI Emerging Markets Index loses 0.2 percent to conclude 2.5 percent weekly slide

Read more: Bank of Russia opens way to cuts in first half

Morgan Stanley on the Won, Lira

Strategists led by Hans Redeker write:

  • The South Korean currency “is one of the EM currencies most at risk as markets digest the implications of the U.S. election results. While Korea remains on a path of weak growth, debt overhang and manufacturing overcapacity, rising concerns on trade protectionism would further negatively impact Korean growth and the won”
  • “The Turkish currency appears cheap when seen through the lens of a CPI-adjusted real exchange rate. But unit labor costs have significantly outstripped consumer price inflation this year, suggesting valuations are not as cheap as first meets the eye”

Other Markets

  • Brazil’s real drops 0.7 percent; President Temer faces further allegations about role in Odebrecht bribe scandal
  • Chinese bonds post worst week in two years; PBOC cuts yuan onshore rate fixing to lowest level since May 2008
  • Malaysian Ringgit reaches 4.478, weakest since Jan. 1998; benchmark equity index drops for a third day
  • Ivory Coast holds parliamentary elections on Sunday

— With assistance by Ben Bartenstein

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