Emerging Currencies Decline as Strong US Retail Sales Bolster the US Dollar
Emerging-Market Currencies Fall as US Retail Sales Signal Resilience
The MSCI Emerging-Market Currency index edged lower on Thursday, ending the session down less than 0.1% as most emerging-market currencies fell on the back of a stronger dollar. The South African rand, the Chilean peso, and the Mexican peso were among the biggest laggards, while the dollar gained 0.3% – its biggest daily advance since April 29.
US retail sales data on Thursday showed that the world's largest economy remains resilient, despite sharply higher gasoline prices. Retail sales advanced for a third month in April, rising 0.5% after a revised 1.6% gain in March. This latest report highlights the US economy's ability to withstand inflationary pressures.
The Brazilian real led gains, rising 0.6% against the dollar and reversing some of the losses in the previous session. Markets were roiled on Wednesday after a news website linked right-wing presidential candidate Flavio Bolsonaro to Daniel Vorcaro, the jailed former chief executive of a bank at the center of a massive fraud probe.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Comparison of Emerging-Market Currency Index and US Dollar
| Currency Index/US Dollar | April 29 | Thursday |
|---|---|---|
| MSCI Emerging-Market Currency Index | -0.3% | -0.1% |
| US Dollar | 0.3% |
Oil prices wavered throughout the session, with Brent futures trading above $106 per barrel following a meeting between US President Donald Trump and Chinese leader Xi Jinping. Discussions included the war in Iran and increased oil ties between the two nations.
Developing world equities advanced 0.7%, rising for the third time in four days as technology companies in Taiwan and China joined a hot streak kicked off by South Korean peers. The stocks were buoyed by optimism that talks between the US and China will improve trade ties and boost demand for artificial intelligence-related hardware and services.
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
| Sector | Thursday | Change |
|---|---|---|
| Information Technology | 1.4% | +0.7% |
| Materials | -0.2% | -0.6% |
| Energy | -0.5% | -0.8% |
| Industrials | -0.1% | -0.4% |
Chipmakers have led the rebound in stocks since the beginning of April, as earnings upgrades overshadowed concerns about the Iran conflict spurring inflation. Expectations of a thaw in US-China relations during President Trump's visit backed demand for AI-related companies, as China's leader signaled that Beijing may be open to business deals and purchasing commitments.
Investor Takeaway
Investors should be cautious of emerging-market currencies due to the strengthening US dollar.
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