Emerging Markets Take Breather Amid US Holiday Trading
Currencies across emerging markets paused their recent upward movement on Thursday as trading activity slowed significantly due to the Thanksgiving holiday in the United States. The temporary halt in momentum came after several days of gains, with Latin American currencies particularly feeling the pressure during the quiet session.
The MSCI indexes that track both emerging-market currencies and equities remained largely unchanged throughout the day, reflecting the subdued market conditions. Trading volumes were noticeably thin as American financial institutions observed the long weekend.
Latin American Currencies Lead Declines
Among the worst performers were the Chilean and Colombian pesos, which saw substantial declines during the trading session. The Brazilian real followed closely behind, marking a significant reversal for the region after posting strong gains just the previous day.
Jose Prieto Jaramillo, business head at BTG Pactual in Bogota, explained the market conditions: "Today EMFX looks much calmer given the lack of data in the calendar and the long weekend in the US." He noted that the month had seen considerable volatility regarding rate-cut expectations, but recent ADP employment data had reinforced scenarios pointing toward policy easing.
The Federal Reserve's Beige Book survey provided additional support for this outlook. The report indicated that employment had declined slightly while prices rose moderately, based on feedback from regional business contacts across the United States.
Asian Markets Show Mixed Signals
While Latin America struggled, Asian markets presented a more varied picture. The South Korean won climbed higher after the Bank of Korea made significant changes to its policy statement, removing language that had previously signaled a rate-cut bias. However, the central bank emphasized it remained open to easing measures if necessary.
Meanwhile, the onshore yuan paused its four-day gaining streak after the People's Bank of China set the currency fixing at a weaker level than market estimates. This marked the first time since July that the central bank had set the fixing below expectations.
Fiona Lim, senior foreign-exchange analyst at Malayan Banking Berhad in Singapore, commented on the developments: "The fix has set a tone for Asian currencies. And a lot really depends on the USD moving forward - a December rate cut is already priced in around 80%. As such, I think it is hard for the USD to break out of its recent ranges either way."
Broader Emerging Market Outlook Remains Positive
Despite the day's mixed performance, the overall bullish environment for developing market assets remains intact for the year. In a significant assessment, JPMorgan Chase & Co. stated in its EM sovereign credit outlook that emerging-market fundamentals appear in good shape with repayment risks seeming low.
The banking giant noted that most at-risk sovereigns are expected to meet their Eurobond payments through 2026. JPMorgan added that EM sovereign spreads haven't maintained such tight levels for this duration since before the great financial crisis.
In primary debt markets, Poland announced plans to front-load its 2026 international issuance calendar following a budget deficit widening caused by increased defense spending. Meanwhile, in Latin America, Moody's Ratings downgraded Brazilian sugar powerhouse Raizen SA to junk status, cutting one of Brazil's last remaining investment-grade corporate credits.
The day's trading activity highlighted the continued sensitivity of emerging markets to US monetary policy expectations, with most analysts anticipating a Federal Reserve rate cut in December despite the temporary pause in currency movements.
