Emerging Currencies Trim Gains on Higher USD as Stocks Hold Rise

Developing-nation currencies pared gains on reports that Federal Reserve Governor Christopher Waller has emerged as a top Fed chair candidate, raising confidence over the independence of the institution and boosting the dollar.

The MSCI index for emerging currencies trimmed its rise to 0.2% from as much as 0.4% as the Mexican peso and Brazilian real slipped. The move was driven by a recovery in dollar’s strength as the emergence of Waller as the favorite pick for Jerome Powell’s replacement, according to Thierry Wizman, a macro strategist at Macquarie Group in New York.

“The FOMC is less likely to dismiss his views as ‘political’ if they know that he’s been open-minded, and was right about the slowdown in the economy,” Wizman said. He gives investors more confidence in the Fed than someone from US President Donald Trump’s inner circle, he added.

Still, the strength in the dollar isn’t derailing risk appetite for emerging assets, supported Thursday by positive signals on global trade and steps toward a truce in Ukraine.

The MSCI EM Index for equities is up 1.2%, the most in two weeks, as chip manufacturer Taiwan Semiconductor Manufacturing Co. rose to a record on the prospect of being exempted from US semiconductor tariffs.

“EM Asia, and particularly semiconductor names, have performed strongly today in view of the tariff exemption announcement,” said Matthew Peacock, an emerging-market equities analyst at Aberdeen in London, who also cited the higher likelihood of a US rate cut in September. “While this is positive for EM stocks, volatility will likely persist for the remainder of the year due to ongoing tariff uncertainties.”

The Philippine peso and Taiwan dollar advanced against the greenback. The Philippine peso rose 0.9% after economic growth in the second quarter beat expectations even as trade and industrial expansion slowed amid uncertainty over the impact of US tariffs.