(Bloomberg) -- Emerging-market currencies broke a five-day winning streak on Tuesday, with Iran’s missile strikes against Israel prompting investors to take turn to safe-haven assets.
The MSCI gauge tracking developing-world currencies fell as much as 0.5% before paring losses at the close, in a session marked by fears over conflict escalation in the Middle East. An index of developing world stocks traded lower for most of the day before an adjustment at the end of the session sent it slightly higher.
The Israeli military said on Tuesday that Iran fired more than 100 ballistic missiles directly at the country. The launch comes after Israeli forces moved into Southern Lebanon as part of its campaign against Tehran-backed Hezbollah. A White House senior official had warned the attack was coming just hours before it took place, triggering a selloff in riskier assets. Oil price spiked in the aftermath, while gold rose and stocks declined as part of a global flight to safety.
Although it’s still early to tell, the conflict clouds what was a favorable environment for emerging markets, said Alejandro Cuadrado, head of global FX at BBVA in New York. The rise in commodity prices could help contain the slump, he added.
“The market has grown more immune to these things than ever, so the reactions have been rather limited,” said Brad Bechtel, global head of foreign exchange at Jefferies in New York. “Higher beta names with solid stories like PLN, ZAR should perform well.”
Meanwhile, fresh jobs and manufacturing data from the US were mixed, fueling currency volatility, particularly in Latin America. The ISM price index fell by the most since May 2023, while US job openings rose in August to a three-month high, at odds with other data indicating slowing demand for workers.
Fed Slide
Asian currencies slid earlier in the session as comments from Federal Reserve Chair Jerome Powell Monday reverberated across markets. Powell acknowledged that projections issued by officials alongside their September rate decision point toward quarter-point rate cuts at the next two meetings, in November and December.
“We continue to believe the market is overestimating the Fed’s capacity to ease,” Elias Haddad, a strategist at Brown Brothers Harriman, wrote in a note.
Major Asian markets including China, Hong Kong and South Korea were closed for a holiday Tuesday. Mexican markets are also closed, while investors prepare to scour Claudia Sheinbaum’s inaugural presidential address for clues about her plans for the economy.
Elsewhere, Zambia’s dollar bonds climbed after its 2025 spending plan won praise from Morgan Stanley.
--With assistance from Vinícius Andrade and Maria Elena Vizcaino.
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