Emerging-market currencies experienced their fourth consecutive day of losses, driven by increasing global bond yields that are impacting riskier assets internationally. MSCI Inc.'s benchmark for developing-nation currency returns dropped 0.3% by 11:47 a.m. in London, placing it on track for its longest decline streak since June. Concurrently, the equivalent gauge for stocks saw a 0.9% decrease.
This decline in emerging market assets coincides with the 10-year US Treasury yield reaching 5.02%, its highest level since 2007. This surge in bond yields is attributed to a global bond selloff, fueled by rising energy prices, mounting debt, and persistent inflation concerns. Oil prices, in particular, are hovering near a four-month high following an attack on Saudi Arabian energy infrastructure.
The broader market sentiment is also affected by an anticipated Federal Reserve interest-rate hike, the first since 2023, expected later this week. Analysts, like Dilin Wu of Pepperstone, believe this hike is necessitated by inflation not cooling quickly enough, largely due to the Middle East situation's impact on energy prices. Wu, however, expects the impact on local currencies to be temporary unless the Fed signals a prolonged tightening cycle.
Several Asian currencies have weakened significantly, including the Taiwan dollar to 31.836 per dollar (lowest since August 26), the South Korean won by 0.7% to 1,356.70, and the Malaysian ringgit by nearly 0.2% to 4.08 per dollar (weakest since August 17). The Indonesian rupiah fell to 17,685, a near two-week low, while stocks in Jakarta declined by as much as 1.1% for the fifth straight session. Net oil importers like Thailand and the Philippines also saw their markets fall, by 0.8% and 0.9% respectively. Concerns over artificial intelligence development, after calls for a slowdown by industry leaders, also contributed to the downturn in equity markets, particularly affecting chipmakers and beneficiaries of AI trade like South Korea and Taiwan.
