06:20 AM EST, 11/12/2024 (MT Newswires) -- Emerging market currencies have on the whole weakened over the past week although they have held up better than some feared, at least initially, after the United States elections, said Mitsubishi UFG.

Nevertheless, EM currencies fell to fresh year-to-date lows on average against the US dollar, wrote the bank in a note to clients. The worst-performing EM currencies since last Monday have been Thailand's THB (-3.1% versus the USD), Hungary's HUF (-3.0%), South Africa's ZAR (-2.8%), Chile's CLP (-2.6%), Poland's PLN (-2.5%) and the Czech REpublic's CZK (-2.5%).

In contrast, the Latin American currencies of Colombia's COP (+1.7% versus the USD) and Brazil's BRL (+0.5%) have outperformed. Measures of implied volatility for EM currencies have fallen back now that uncertainty over the outcome of the U.S. election has eased, stated MUFG.

The decisive election victory for Republican candidate Donald Trump and likely Red Sweep for the Republicans is viewed as the most bullish outcome for the USD although narrow majorities in both Houses of Congress could still curtail room for maneuver when setting policies, pointed out the bank.

Market attention is now quickly turning to who Trump will pick to hold key positions in his incoming government. It has already been reported that Trump has chosen Tom Homan to be his "border czar" and to implement tougher immigration policies. Trump's picks to be U.S. Treasury Secretary and Trade Representative will be more important for the foreign exchange market.

The Financial Times reported at the end of last week that Trump has asked Robert Lighthizer to be the U.S. Trade Representative. It was a role he carried out during Trump's first term. He is a well-known trade hawk which fits with Trump's policy agenda to significantly raise tariffs on imports from China and other major trading partners. A development that should encourage further EM currency weakness, added the bank.

At the same time, Chinese policymakers have announced further details of their plans to provide support for the economy. The National People's Congress Standing Committee approved a CNY10 trillion package for local authorities to bring off-balance sheet debt onto their books. The local government debt restructuring should reduce pressures from near-term debt repayment and lower debt servicing costs creating more room to execute budgeted spending to meet this year's growth target.

Finance Minister Lan Foan also hinted that further fiscal measures to stabilize the housing market, inject bank capital and support domestic demand are in the pipeline but didn't go into specifics. More forceful fiscal spending is more likely next year to provide an offset to the negative impact of higher tariffs imposed on imports to the U.S.

The lack of details over further fiscal stimulus has left market participants disappointed and will contribute to further weakness in EM currencies heading into year-end, according to MUFG.