Most emerging market currencies gained for a third consecutive session on Monday, as the dollar weakened further ahead of key U.S. inflation data this week, while an index of developing world equities hit a more than one-week high.
The South African rand, the Hungarian forint and the Polish zloty all rallied more than 1% against the dollar, with investors awaiting U.S. consumer prices data on Tuesday that might give the Federal Reserve room to slow the pace of rate hikes at its Sept. 21 policy meeting.
The MSCI index of EM currencies rose for a third consecutive session after sinking to a two-year low last week.
“If the Fed hiking cycle is nearing a peak, that will give some confidence that EMs could manage this increase in global interest rates,” said Per Hammarlund, chief EM strategist at SEB in Stockholm.
The Czech crown also climbed versus the dollar, but was little changed against the euro as data showed inflation unexpectedly eased in August for the first time since June 2021, providing the first signs of slowing price growth in central Europe.
The Indian rupee also steadied ahead of an inflation report that is expected to show consumer prices rose to an annual 6.90% in August, compared with 6.71% in July.
The Turkish lira, however, came under pressure as data showed the country’s current account deficit in July widened to a bigger-than-expected $4.01 billion. Economists had forecast a deficit of $3.6 billion, according to a Reuters poll.
The lira, among the worst performing EM currencies so far this year, was nearly flat at 18.23 per dollar, not far from its all-time low of 18.40.
“Energy prices have come down a little bit now and that should help, but also the tourist season is winding down and will remove some of the income that Turkey has seen over the last few months. So, there’s still risk we’re looking at a large current account deficit going forward,” said SEB’s Hammarlund.
The International Monetary Fund is looking for ways to provide emergency funding to countries facing war-induced food price shocks and will discuss measures at an executive board meeting on Monday, sources familiar with the matter told Reuters.
The wider MSCI EM equities index jumped 0.7% to touch its highest since Sept. 1.
Bourses in Istanbul, Johannesburg, Warsaw and Budapest gained between 0.9% and 2.3%, in line with a rally in global stocks.
Aiding the gains was news that Ukrainian forces had recaptured more than 20 towns and villages in just the past day, after Russia acknowledged it was abandoning Izium, its main stronghold in northeastern Ukraine.
Meanwhile, the Biden administration plans next month to broaden curbs on U.S shipments to China of semiconductors used for artificial intelligence and chipmaking tools, Reuters reported, citing sources familiar with the matter.
Chinese markets were closed on Monday.
For GRAPHIC on emerging market FX performance in 2022, see https://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX
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