Emerging-Market Assets Erase Losses as CPI Data Bolster Fed Bets

Emerging-market stocks and currencies erased their early declines after a key US inflation report came in line with estimates, encouraging bets that the Federal Reserve will be able to start cutting interest rates next month.

An MSCI Inc. gauge for developing-nation currencies was up 0.1% as of 8:45 a.m. in New York Tuesday. South Africa’s rand and Brazil’s real were among the best performers in a basket of 23 emerging-market exchange rates tracked by Bloomberg.

The US consumer price index for July rose 0.2% from a month earlier, matching estimates. The core consumer price index — which excludes food and energy costs — increased 0.3% in July from a month ago, US Bureau of Labor Statistics figures showed Tuesday, also in line with expectations.

The data “reinforces” the narrative of a September cut as the tariff pass-through is actually lower than in June, said Alejandro Cuadrado, head of global FX and Latin America strategy at Banco Bilbao Vizcaya Argentaria SA in New York. Investors had been “preparing for the risk of a stronger read” in the last couple of sessions.

Traders started piling into bets of more rate cuts by the Fed after a massive downward revision in US jobs data earlier this month. They’re now pricing in nearly a 90% chance of policymakers lowering borrowing costs by a quarter point at the September meeting, up from around 80% on Monday.