Petr Krpata, chief EMEA FX and IR strategist at ING, suggests that although Federal Reserve Chairman Jerome Powell reiterated his message from his last week’s testimony (suggesting a July rate cut), the positive spillover into emerging market FX has been hampered by President Trump’s renewed threat of tariffs on China.
Key Quotes
“The high degree of unpredictability of US trade policy should keep a lid on EM FX gains, making EM local currency bonds a more attractive asset class in our view. This is because both scenarios of (a) more easing from major central banks; and (b) possible escalation of trade wars should be positive for EM fixed income, while in the case of EM FX, the asset class would only do well under the former.”