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Emerging-Market Currencies Gain on Final Day of Weak First Half

Peter Laca and Zijia Song

28 June 2024 at 5:25 pm·2-min read

(Bloomberg) -- Developing currencies gained on the final trading day of an otherwise weak first half marked by surprise election results and uncertainty over where the Federal Reserve will take interest rates.

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The South African rand and Chilean peso soared Friday, lifting an index of emerging-market currencies 0.2% after core personal consumption expenditures price index in the US slowed, welcome news for those hoping for rate cuts from the Fed in the coming months. Despite the gains, the index closed the first half down 1% in its worst start of the year since 2022.

Across the developing world, assets have suffered in recent months due to election volatilities. Looming ballots in some of the world’s major economies — in France this weekend, the UK next week and the November presidential contest in the US — are likely to shape investors’ risk perception and drive capital flows in the second half.

Stocks have largely shrugged off the uncertainty, posting a 6% return over the past six months, for the best first half since 2021, according to data compiled by Bloomberg. The gauge for equities closed higher Friday, driven by shares in the information technology sector.

Rand Jumps

The rand rallied on optimism that efforts to create a broad coalition government in South Africa were on track, leading its emerging-market peers higher amid a broad risk-on session. The currency gained as much as 1.8% against the dollar, its biggest gain this year.

Earlier Friday, strategists at Bank of America Corp. closed their bearish trade recommendation for the rand as they anticipate a coalition administration will be formed by the African National Congress — which lost its parliamentary majority in May elections — and the centrist Democratic Alliance.

“On confirmation of the cabinet announcement, we expect further gains in South African assets, broadly,” said Razia Khan, chief economist for Standard Chartered Bank.

The Mexican peso also strengthened, by 0.7%, after the central bank signaled that policy will remain restrictive even as space for more interest rate cuts may be appearing.

In India, government bonds were poised to attract billions of dollars in new inflows after their inclusion in the JPMorgan Chase & Co.’s emerging market index, which will open a $1.3 trillion market to a broader range of investors.

--With assistance from Mpho Hlakudi.

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