Emerging Markets Eye Gains Amid Federal Reserve Rate Decision

Emerging market assets continued their upward momentum on Tuesday, buoyed by investor optimism ahead of a key U.S. Federal Reserve monetary policy decision. The MSCI index for emerging market currencies gained 0.2% while the stocks gauge rose 0.4%. Investors are closely watching a potential 50-basis-point rate cut by the Fed.

Emerging market assets looked set to retain their multi-session winning streak on Tuesday, as the global mood remained upbeat ahead of a crucial U.S. Federal Reserve monetary policy decision, wherein a wider cut could further drive risk appetite.

The MSCI index for emerging market currencies gained 0.2%, standing strong at record levels, while the stocks gauge climbed 0.4% to a two-week high. While the FX index was on track for its first five-day gain since July, the stocks index was set for its first four-day rise in a month.

The U.S. central bank will convene for a two-day meeting later in the day and investors see 69% odds of a 50-basis-point cut by the Fed on Wednesday. Bets for a bigger cut have picked up sharply from a week ago, according to LSEG data. The U.S. retail sales report, due later in the day, will also be monitored for any surprises in an otherwise slowing inflation trend in the world's largest economy. The U.S. dollar index was trading at its lowest levels of the year.

"For the markets, the path and pace of rate cuts in the coming year will be important beyond the size of the initial rate cut this week," Commerzbank analysts said. "The three key themes to watch near-term are the U.S. election, the health of the economy, and the pace of cuts for the Fed."

Meanwhile, Kenya's finance ministry forecast a fall in the budget deficit to 3.5% of GDP in the 2025-2026 fiscal year. After scrapping tax hikes of over $2.7 billion in June in the face of nationwide protests, the government eventually opted for spending cuts and more borrowing.

The Kenyan shilling remained unchanged. Israeli stocks dropped 1% to a nearly one-month low, looking to extend losses from Monday, when reports that Prime Minister Benjamin Netanyahu was considering firing his Defence Minister shook the political landscape.

The shekel was largely stable on the day. Elsewhere, Hong Kong stocks rose 1.3% to a two-week high, with Midea Group's strong gains in debut trade after the Chinese home appliances maker raised about $4 billion, bolstering hopes of a revival in large Chinese issuances.

South Africa's benchmark stock index touched a nearly two-week high, with OUTsurance Group, the country's third-largest insurer by value, climbing 4.3% on strong full-year profit. Poland's blue-chip stocks regained some lost ground after Monday's nearly 2% fall.

Equity markets in Sri Lanka, Pakistan and Angola were shut on account of public holidays. HIGHLIGHTS:

** Czech central bank has room to cut rates further, Bloomberg reports, citing policymaker Holub ** Fitch Upgrades Tunisia To "CCC+"

** Blinken to travel to Egypt and discuss Gaza ceasefire

(With inputs from agencies.)