Global Markets: Currency Movements and Economic Shifts

Emerging markets currencies showed minimal change, except for Hungary's forint, which weakened following new tax policies. Kenyan assets faced scrutiny after a credit downgrade. Chinese bonds saw a slight yield dip, while Sri Lanka made progress on debt restructuring. U.S. Federal Reserve comments are anticipated for further market direction.

Emerging markets currencies exhibited minimal fluctuations on Tuesday, with Hungary's forint experiencing a decline for the second consecutive day following the announcement of new tax policies by the government. The focus also shifted to Kenyan assets after a recent credit rating downgrade. MSCI's index tracking developing market equities rose by 0.3%, while an index tracking foreign exchange remained steady against the dollar.

In Central and Eastern Europe, Hungary's forint depreciated by 0.4% against the euro, continuing its Monday decline after the local government introduced taxes on firms to balance the budget, which has averaged a nearly 7% deficit of economic output over the past four years. Frantisek Taborsky, EMEA FX & FI strategist at ING research, noted that this could mitigate fiscal risks and help achieve the government deficit target of 4.5% of GDP, positively influencing Hungarian government bonds (HGBs) and issuance for the rest of the year.

In Africa, the yield on Kenya's dollar bond maturing in 2034 increased by over 10 basis points after Moody's downgraded the country's sovereign rating further into junk status. Bond prices had faltered in June when President William Ruto opted against proposed tax hikes under the International Monetary Fund's plan for economic stability. Moody's anticipated that Ruto's decision to cut spending might prolong Kenya's debt affordability challenges.

Meanwhile, Chinese bond yields dipped between 2 and 4 basis points, with the yuan remaining relatively stable amid speculation of central bank intervention. A Reuters poll indicated that new yuan loans likely more than doubled in June due to regulatory policy support ahead of the 'Third Plenum' meeting from July 15-18, where more reforms are expected.

In South Asia, Sri Lanka's rupee edged up by 0.1% against the dollar as the yield on dollar bonds maturing in 2030 rose by 42 basis points. Sri Lanka's foreign minister announced imminent completion of debt restructuring talks amounting to $12.5 billion. Additionally, the parliament is set to vote on an amendment to enable SpaceX's Starlink to commence operations in the country.

Later, investors awaited comments from U.S. Federal Reserve chair Jerome Powell for insights on the central bank's monetary policy outlook.

(With inputs from agencies.)