MSCI’s index tracking global EM currencies was down 0.1%, while the stocks index was up 0.1%.
Trading was light with most Asian markets closed for the Lunar New Year holiday.
Investors kept to the sidelines ahead of the Fed’s first interest rate decision of the year.
The central bank is widely expected to hold rates steady, but any signals on the outlook for the year will be closely scrutinised as traders increasingly expect a more cautious pace of easing.
The Fed tilted to a more hawkish stance at its last meeting, taking into account the inflationary impact from US President Donald Trump’s potential policies and steady economic growth, which could slow down the pace of rate cuts in the world’s largest economy.
Marc Ostwald, chief economist and global strategist at ADM Investor Services, said that the Fed’s messaging is going to be “unclear” as it could point to reasons besides tariffs to justify a pause, in an attempt to not “get into a clinch with Trump.”
“For emerging markets, what the Fed does in terms of keeping rates higher for longer is a big hurdle”.
Threats of tariffs and prospects of higher for longer rates in the US have pressured demand for certain emerging market assets since last year, as local economies also grapple with an uncertain global growth outlook.
A White House spokesman said yesterday that Trump still plans to make good on his promise to issue tariffs on Canada and Mexico on Saturday, shattering any hopes of the US taking a less aggressive stance on tariffs.
Markets will be watching currencies and assets in heavily tariff-exposed economies such as China, Mexico and Canada, that have been reactive to headlines since Trump’s inauguration.
The peso was flat against the dollar in early trade.
“We are now at the stage where markets are gradually getting used to Trump again.
“There is now some toning down of reaction and a realisation of looking at what he does, not what he says,” said Ostwald.
Meanwhile in emerging Europe, most currencies were subdued against the euro.
The Czech crown was 0.2% lower, after the local central bank’s governor said it was “very likely” it would cut interest rates by 25 basis points next week, in a media interview.
The official also said that bitcoin was under consideration as an asset for diversifying the central bank’s reserves but that no decision was imminent.
If approved, the bank could eventually hold as much as 5% of its €140 billion (US$146.13 billion) reserves in bitcoin.
The Turkish lira was 0.2% lower against the dollar, while South Africa’s rand was flat.
South Africa’s main stock index rose 0.7%, briefly touching a one month high, while bourses in Europe rose broadly.
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