(Bloomberg) — Emerging-market currencies are on track for a modest weekly gain, as the absence of US data during the government shutdown damped volatility and clouded investors’ reading of the Federal Reserve’s policy path.
The MSCI Inc. gauge for developing-nation currencies was little changed as of 1:40 p.m. in New York, with most exchange rates trading in narrow ranges. Turkey’s lira lagged peers even after the country’s inflation data came in above expectations. A sister index for equities rose 0.4% as investor optimism over artificial intelligence propelled tech shares.
Markets had a glimpse of US labor data earlier in the week, but the shutdown — now in its third day — delayed both Thursday’s weekly initial jobless claims and Friday’s nonfarm payrolls report. The JPMorgan Emerging Market Volatility Index, an indicator of implied foreign-exchange swings three months ahead, is hovering at the lowest levels in over a year.
“Markets are digesting the probability of an extended US government shutdown, with a longer shutdown being likely worse for the dollar,” said Shaun Lim, an FX strategist at Maybank in Singapore.
Emerging-market stocks are up more than 3% this week, poised for their biggest weekly advance in three weeks and with Taiwan Semiconductor Manufacturing Co. leading the advance. Hitachi Ltd.’s partnership with OpenAI on energy and Fujitsu Ltd.’s growing ties with Nvidia Corp. are bolstering investor wagers that the billions in AI sector investments will pay off.
A major headache for traders is that the shutdown is limiting the release of economic data that underpins Fed decisions and so has the power to shift market prices.
“The lack of data is an issue, and that certainly suggests that the duration of the shutdown will still matter,” Homin Lee, senior macro strategist at Lombard Odier, said in a Bloomberg TV interview. If the shutdown is prolonged, it’s going to be a negative scenario for the dollar, but slightly dovish for US rates as monetary policy will be operating without evidence, he added.
Developing-world assets have been shored up by a huge dollar selloff in the wake of Donald Trump’s tariff moves in April. With more US interest-rate cuts likely on the way, some analysts say the scene is set for a strong fourth quarter for currencies.
Investors put money into EM-dedicated debt funds for the past 24 straight weeks, adding $3.7 billion in the week through Oct. 1, according to the latest EPFR Global data compiled by Bank of America Corp. Year-to-date net inflows stand above $50 billion.
“The path for real rates in the US is lower and therefore the path for the dollar is weaker,” said Gautam Kalani, portfolio manager at BlueBay fixed income for emerging markets at RBC Global Asset Management.
(Updates pricing in second paragraph. A previous version corrected to say Turkey’s inflation data surprised to the upside.)
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