Most emerging market currencies fell as data showing expansion in the US manufacturing sector fueled wagers that the Federal Reserve will raise interest rates before year-end.
The won and Poland’s zloty paced declines, while Malaysia’s ringgit was the only one of 24 developing-nation currencies tracked by Bloomberg to advance, as an overnight rally in energy prices offset the prospect of a Fed rate increase as soon as next month. Emerging market stocks advanced on speculation the benefit of stronger US economic growth will be felt globally.
Brent crude surged to a six-week high on Monday, while the dollar strengthened against major peers and Treasuries fell after a report showed US manufacturing expanded in September. Cleveland Fed President Loretta Mester said in a Bloomberg Television interview Monday that she expects inflation to move back toward the central bank’s 2 percent target over the next couple of years, and a “preemptive” rate hike would be appropriate.
“Dollar strength and supported US Treasury yields off the back of better-than-expected US data are reminding markets that November remains a live meeting,” said Christopher Wong, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “Oil-price gains are supporting the ringgit.”
A gauge of emerging market currencies have strengthened this year as the Fed the refrained from tightening policy.Traders assign 17 percent odds of tightening at November’s Federal Open Market Committee meeting, and a 61 percent chance of action by year-end.