According to a report by Bloomberg, emerging market currencies are experiencing an uptick on Monday due to disappointing retail sales data in the US, which has raised concerns about the outlook for the country's economy.
The report showed that US retail sales for February were lower than expected, while the previous month saw the biggest drop since July 2021 after a revision. This data, along with other recent reports, has increased the likelihood of the Federal Reserve implementing more aggressive rate cuts in the coming months. This has resulted in a boost for developing countries' currencies and a decline in the US dollar.
Emerging market currencies have seen a 0.2% increase recently, while the US dollar has dropped to its lowest level in four months on an intraday basis.
Analysts, such as Juan Perez at Monex USA, noted that this turnaround reflects a shift from the pessimism seen the previous week. The markets had previously believed that the Federal Reserve would not need to cut rates, but now, with concerns about a potential recession, the odds of rate cuts have risen.
Additionally, Latin American currencies have received a positive impact from rising commodity prices, supported by China's efforts to boost domestic consumption. This news has also contributed to the rise in emerging market stocks, with a nearly 3% increase in March, the largest advance in six months.
Investors are moving beyond the hype of tech startups to focus on China's strategies to stimulate consumption. Signs of increased domestic demand, with improvements in retail sales and industrial output, have been observed for the January-February period.
The emphasis on boosting consumption is seen as a positive development for China's stocks, with Charu Chanana, chief investment strategist at Saxo Markets, highlighting the potential for wider participation from consumer, travel, and health-care sectors.
While Chinese shares have remained steady amidst economic data releases on Monday, the broader emerging market sentiment has improved as concerns about the severity of President Donald Trump's tariffs have eased. The decline in the US dollar in March has further supported emerging-market stocks and currencies, with the MSCI EM currency index recording a 1% increase this month, the largest monthly gain since September.