BENGALURU: Most emerging market currencies were muted on Tuesday, as sentiment remained fragile with investors assessing the risks from rising tensions in the Middle East following Hezbollah and Israel’s clash over the weekend.

As of 0830 GMT, MSCI’s index for emerging market stocks slipped 0.3%, while a gauge for currencies was down 0.2%, easing from record high levels.

The Chinese yuan slipped from three-week highs hit in the last session to trade at 7.1296 per dollar. In offshore trade, it was last down 0.1%.

Chinese shares also came under pressure, with stocks of EV makers and steel producer down after Canada said on Monday it would impose a 100% tariff on imports of Chinese electric vehicles and a 25% tariff on imported steel and aluminium from China.

Hungary’s forint slipped 0.1% against the euro ahead of a local interest rate decision later in the day.

The Hungarian central bank is expected to pause its easing cycle after 15 rate cuts, keeping its base rate at 6.75%, a Reuters poll indicated, with a few outlying forecasts pointing to further easing.

“Despite a surprising cut in July, we do not anticipate any changes ... the July inflation rate was higher than expected, which supports our view of stable rates,” analysts at Erste Group wrote in a note.

Most EM currencies saw sharp gains at the end of last week when Federal Reserve Chair Jerome Powell said on Friday “the time has come” to lower interest rates, pushing the dollar to its lowest level so far this year.

San Francisco Fed President Mary Daly on Monday backed that claim.

However, EM assets, generally considered as risky, paused as investors measured the risks of escalating geopolitical worries in the Middle East.

Hezbollah had launched hundreds of rockets and drones at Israel early on Sunday, and Israel’s military said it struck Lebanon with around 100 jets to thwart a larger attack, in one of the biggest clashes in more than 10 months of border warfare.

Hasnain Malik, head of equity research at Tellimer Research noted that “there are clear indications that this escalation remains calibrated.” In Asia, the Philippine peso led losses with an 0.5% against the dollar, while South Korean won shed 0.3%.

Russia’s rouble gained 0.4% against the greenback, while South Africa’s rand was largely stable at 17.77 per dollar.

Bourses in emerging Europe were mixed, though Hungary’s benchmark lagged with a 0.7% fall.