Emerging markets tested by rising dollar ahead of Joe Biden’s return

Bloomberg

A stronger US dollar is proving to be an early test for emerging-market currencies on the eve of Joe Biden’s inauguration.
The greenback gained over the last two weeks, buoyed by the president-elect’s proposal for a $1.9 trillion stimulus package. Most developing-nation currencies have slumped in that span, and history suggests
further pain may be in store.
MSCI Inc.’s gauge of emerging-market currencies ended 2020 with its biggest quarterly advance in a decade as optimism over the distribution of Covid-19 vaccines bolstered risk appetite. Now, the backdrop of rising cases, renewed lockdowns and vaccine concerns threatens to reverse those flows.
“If vaccines prove less effective than we expect and [the] global economy stumbles, the ‘safe haven’ dollar would likely appreciate,” Goldman Sachs Group Inc. strategists including Zach Pandl wrote in a report.
Still, the strategists “expect broad dollar weakness” this year as exposures to risk assets and upside in commodity prices can outweigh the potential drag from higher US rates.
Policy makers in Malaysia, South Africa and Brazil will also decide on their borrowing costs this week.
Meantime, Biden’s return to the White House on Wednesday will carry particular significance for traders who follow relations between the world’s two largest economies. Last week, the Trump administration announced it would sanction six officials from China and Hong Kong in a parting shot to Beijing.