Due to the continued decline of Asian technology stocks, emerging market stocks have resumed their decline after a two-day respite.
As informed by WiseNews, emerging market stocks fell 0.5% and accumulated a 1.5% decline this week, with Taiwan Semiconductor (TSM. US) and Samsung Electronics (SSNLF. US) leading the decline, as Asian technology stocks continued to fall. And various currencies have rebounded relative to the generally weak US dollar. MSCI's emerging market stock index fell 0.5%. The currency index for developing regions rose 0.2%, led by the Indonesian rupiah and Thai baht.
As one of the biggest victims of arbitrage trading strategy closing, the Mexican peso has fluctuated before the country's central bank decided on interest rates on Thursday. The Mexican peso gave back earlier gains and the exchange rate against the US dollar fell 0.1%. The Mexican peso fell 3.7% this month, as the surge in the Japanese yen broke the trading strategy that was based on low-interest rate borrowing in Japan and provided funding for buying high-yield assets elsewhere.
The opposite policy direction of the loose monetary policies of the United States and Japan directly pushed up the yen. However, as the most common financing currency in the world, the rapid appreciation of the yen in a short period of time dealt a heavy blow to arbitrage trading based on the yen. In this type of arbitrage trading, investors often borrow yen with lower interest rates (borrowing yen is almost free of charge in the long-term low interest rate environment) and invest in high-yield assets.
Economists have different views on whether Mexico will lower interest rates by 25 basis points or maintain the rate unchanged on Thursday. Chris Turner, director of FX strategy for ING Groep in London, said: "We are concerned that Mexico's politics may again bring pressure to the peso when the constitutional reform is discussed by the new congress in September. In the coming months, it will be difficult to see the dollar continue to fall below 18.50 pesos."