Emerging Market FX Rise as Tariff Fears Ease With Trump Sworn In

(Bloomberg) -- A gauge tracking emerging market currencies rose Monday as Donald Trump refrained from announcing new trade tariffs as he was sworn in as the 47th president.

The MSCI EM currency index climbed as much as 0.7% during the session, but end-of-day adjustments left it only 0.3% higher on the day. The Hungarian forint and the Polish zloty led advances.

“Seems to be a positive reaction to the idea that Trump may not start out so heavy on the tariff theme,” said Brad Bechtel, head of FX at Jefferies.

The Mexican peso rose 1.3% versus the greenback, which retreated 1.1% as thin liquidity due to a holiday in the US exacerbated moves. The peso briefly pared its gains after Trump pledged to make immigration a key focus in his first hours in office, saying he would call a national emergency on the southern border and send troops. He also designated Mexican cartels as terrorist organizations.

But there were no details on when and on which countries tariffs would be imposed.

Trump’s speech “is kind of neutral for emerging markets, since it did not mentioned any specifics” on his trade policies, said Marco Oviedo, a strategist at XP Investimentos. “The market needs more to evaluate risk and impact.”

Bloomberg News reported earlier that Trump will not unveil China-specific tariffs on his first day in office, as the incoming administration starts with potential engagement with Beijing rather than another trade war. The planned move, first reported by the Wall Street Journal, could set the stage for trade duties in the coming weeks or months.

The reports are “good news for now,” said Oviedo. “Trump probably is evaluating how to best approach this issue” and “strategy could be more selective” than previously thought.

Trump’s remarks laid the groundwork for what he aims to be a transformational administration that was elected on pledges to overhaul US immigration, trade, tax and energy policy.

“While the Golden Age for America might have begun, it remains unclear what this brings to Mexico, hence the MXN might continue to have a wild roller coaster ride over the next days,” said Bernd Berg, an FX strategist at In Touch Capital Markets.

Emerging European currencies led gains across the region on prospects that Trump will fulfill his pledge to bring a swift end to the war in Ukraine. Earlier on Monday, President Vladimir Putin said Russia’s ready for talks with the US on the war.