The fluctuation of the US dollar puts pressure on emerging market currencies. Technology stocks, such as NVIDIA, are poised for action ahead of their financial report
The recent depreciation of the US dollar has led to a general decline in emerging market currencies, with significant declines in Eastern European currencies such as the Polish Zloty and the Czech Koruna. In contrast, the Mexican Peso has rebounded from its lows, driven by market hopes for a ceasefire in Gaza. Investors are focusing on NVIDIA's upcoming earnings report, expecting it to impact the future trend of the technology industry. Despite market expectations for a rate cut by the Federal Reserve, the US dollar may strengthen again due to geopolitical risks
Intellifinance APP learned that due to concerns about the recent excessive selling of the US dollar, most emerging market currencies fell on Wednesday. At the same time, stock investors are holding their breath for NVIDIA's earnings report, hoping to glimpse the future trends of the technology industry.
Eastern European currencies, including the Polish Zloty, Czech Koruna, and Hungarian Forint, led the decline among emerging market currencies, with their closing performance in line with the largest drop in the Euro since June. However, the Mexican Peso and Israeli Shekel bucked the trend, with the Mexican Peso rebounding from its lowest point since the beginning of the year, and the Israeli Shekel remaining stable due to ongoing hopes in the market for a ceasefire in Gaza.
In Asia, the rise in semiconductor stocks coincides with investors' expectations for NVIDIA's upcoming earnings report, although there is a divergence in the market on whether companies in the artificial intelligence field can achieve expected profit growth quickly.
Piotr Matys, Senior Analyst at InTouch Capital Markets, pointed out, "The market's attention to NVIDIA's earnings report is extreme, with its influence even considered to surpass that of Federal Reserve Chairman Jerome Powell's remarks. NVIDIA's performance will undoubtedly set the tone for the entire technology industry and other asset classes."
On Wednesday, with the rebound of the US dollar, the MSCI Emerging Markets Currency Index fell for the second consecutive day. Despite the general market expectation of a 100 basis point rate cut by the Federal Reserve this year, investors remain cautious about the possibility of the US dollar strengthening again, considering the US presidential election and global geopolitical risks.
Matys further analyzed, "As Powell did not explicitly support a 50 basis point rate cut at the September meeting, some market participants believe that the US dollar has been oversold. Domestic factors have also set the tone for the movement of emerging market currencies, such as the sharp drop in the Mexican Peso yesterday due to controversial judicial reforms."
On Wednesday, the Mexican Peso rose by 0.7%, marking the second increase in the past eight days. Meanwhile, the Turkish Lira slightly declined against the US dollar, with a brief sharp drop during the Asian session leaving traders puzzled, but the market later returned to a more predictable state.
The Bank of Israel decided to maintain interest rates unchanged for the fifth consecutive time to balance weak economic growth and inflation pressures from war expenditures.
In addition, credit default swaps (CDS) to guard against the risk of emerging market defaults have decreased, indicating that market expectations of Fed easing policies help stabilize the sentiment of risk assets.
Rajeev De Mello, Fund Manager at Gama Asset Management, said, "Even if NVIDIA's performance is not satisfactory, and we take hedging measures, I still believe that Chairman Powell's clear statement about the Fed starting an easing cycle will dominate the movement of emerging market local currency bonds and currencies."