A resurgent US dollar — up more than 4% in the past two months — has weakened the appeal of investing in emerging markets, and especially in countries where central banks are beginning to slash rates. China’s yuan is the biggest drag on the asset class, with investors preparing for the world’s second-biggest economy to lower bank reserve ratios and roll out more stimulus.
The yuan wobbled on Tuesday even after policymakers followed up a verbal defense of the currency with a stronger local fix on Tuesday. Eastern European currencies posted some of the worst losses globally as sentiment on the region continued to sour following Poland’s larger-than-expect cut to interest rates last week. Thailand’s baht fell after the government raised minimum wages.
In Poland, which holds general elections next month, the zloty tumbled to a five-month low on Tuesday, weakening by more than 1% against the dollar for a fourth day in the past six. Last week’s rate decision has been widely criticized as at least partly influenced by politics. Peers in Hungary and Czech Republic weren’t far behind, posting losses of at least 0.8% each.
In Thailand, Prime Minister Srettha Thavisin pledged to raise the daily minimum wage by as much as 22%, a year after the nation increased the metric by 5%, to help citizens cope with price growth. The nation’s bonds and currency fell.Investors are now awaiting Wednesday’s US inflation report to reassess the amount of hawkishness they’ll require from emerging-market central banks. A softer print could help them unwind some of the selloff of the past week.