Emerging Currencies Drop as EU Elections Add to Political Risks ...
(Bloomberg) -- Currencies in most of the world’s developing economies were weaker as the European Union’s weekend ballots boosted political risks following a series of high-profile elections driving market volatility across the globe.
The MSCI gauge for emerging currencies declined 0.3%, led by eastern Europe, with only the rand bucking the trend as traders reassessed the political outlook following South Africa’s inconclusive ballot at the end of last month. Asian tech stocks pulled the equity benchmark lower.
European currencies were dragged down by a weaker euro, which fell to the lowest in a month after French President Emmanuel Macron called a legislative vote in the wake of a crushing defeat in the European Parliament election over the weekend. The Hungarian forint lost 0.8% to the euro, while the Polish zloty weakened 0.4%.
The prospects of Marine Le Pen’s far-right party doing well in the French election and the potential impact on Europe’s commitment to supporting Ukraine “may well demand a risk premium” on central and east European currencies this month, according to ING Bank NV strategist Frantisek Taborsky.
The South African rand deviated from the global trend, rising 0.9% to the dollar on Monday and paring some of its losses triggered by concerns about a political limbo after the May 29 ballot failed to produce an outright winner.
President Cyril Ramaphosa, whose African National Congress lost its parliamentary majority, said on Monday that the country’s next administration must sustain policy reforms aimed at accelerating economic growth.
The rand appears to be supported for now by “market optimism” over the likelihood of a government of national unity and the potential reduction of political uncertainty, although risks remain in domestic politics as well as global factors such as the upcoming US inflation data and its impact on Federal Reserve’s rate outlook, said Razia Khan, the chief economist for Standard Chartered Bank.
The Mexican peso rose during Asian trading hours after news that President-elect Claudia Sheinbaum’s coalition fell short of obtaining the so-called supermajority needed to make changes to the constitution, but the currency later erased the gains to trade 0.3% weaker against the dollar.
--With assistance from Mpho Hlakudi.
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