Hungary, Czech FX Gain as Traders Flock to Euro on US Concerns

(Bloomberg) — Currencies from Central and Eastern Europe outperformed emerging-market peers Tuesday as the euro advanced against the dollar following President Donald Trump’s move to fire Federal Reserve Governor Lisa Cook.

The common currency pushed higher as the dollar and long bonds in the US fell after Trump’s move to oust Cook stoked concerns over inflation and central bank independence. The Czech koruna, Polish zloty and Hungarian forint gained at least 0.3% each against the greenback. Most Latin American currencies weakened though the Mexican peso bucked the trend. The benchmark gauges for developing-world stocks and currencies fell for the day.

“We are not surprised with the CEE outperformance in a risk off market alongside higher back-end US rates,” said Aroop Chatterjee, a strategist at Wells Fargo in New York. “We see CEE more insulated from global volatility shocks given the stronger relationship with Europe.”

Trump said on Tuesday he was prepared for a legal fight to fire Cook on allegations she falsified mortgage documents. The Fed, meantime, said in a statement it will abide by any court decision in Cook’s legal challenge of her dismissal by Trump.

Traders, fretting over the implications of Trump’s latest move, are turning their attention to inflation data scheduled for release later this week to gauge the path of monetary policy in the US, after Fed Chair Jerome Powell last week opened the door to a rate cut in September.

The optimism for emerging-market assets spurred by Powell’s speech has stalled after Trump’s latest move. The Peruvian sol, Colombian peso and Brazilian real weakened as much as 0.4% each on Tuesday as traders flocked to safer assets.

Read: Trump’s Gamble With Fed Risks Pushing Key Bond Rates Even Higher

Elsewhere, Argentina’s currency rebounded from its weakest level in three weeks after the central bank raised reserve requirements for banks. The authorities’ move aims to drain excess liquidity from the market ahead of a local debt auction on Wednesday.

The nation’s assets have come under pressure as President Milei is mired in a corruption scandal that may threaten his ability to carry out his reformist agenda for the South American nation.

Asia

Most Asian currencies sank amid the broad risk aversion ahead of key developments on trade between several countries the region and the US this week.

Trump’s extra 25% tariff on Indian imports over Russian oil is set to take effect on Wednesday. South Korea, meanwhile, is under pressure to honor its tariff deal, including a 15% levy on the nation’s goods and hundreds of billions of dollars of investment in the US. Meanwhile, China is sending a key trade negotiator to the US, in a sign that talks between the world’s biggest economies are resuming after they agreed on a truce.

Meantime, the index for emerging-market equities, heavily weighted toward Asia, snapped a three-day losing streak, coming off the nearly four-year high it touched a session prior.

“Asia is more equity driven than fixed income,” said Ning Sun, a senior EM strategist at State Street Bank in Boston. “Overnight Asia equity declined across the board. I think that explained the Asian FX underperformance”

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