Emerging currencies book cautious gains as Turkish lira suffers

Article content

Emerging market currencies enjoyed cautious gains on Tuesday taking support from a subdued dollar, with focus on economic data and central bank decisions in Europe later this week, while the Turkish lira weakened amid risks of further rate cuts.

MSCI’s index of emerging market currencies nudged higher with the dollar index slipping 0.3%, adding to a near 0.6% fall in the previous session. Developing stocks rose 0.3%, although with lower volumes as Chinese markets were shut for Lunar New Year holidays.

Article content

A raft of data across the developing world pointed to slowing growth with Purchasing Managers’ Index numbers from Hungary, Turkey, India, Poland and the Czech Republic all coming in below last month’s level, though still in expansion territory. Data from South Africa and Russia showed an acceleration of growth.

Turkey’s lira was the outlier among developing currencies on the day, weakening 0.5%. The lira – which fell 44% last year and is down 0.4% since the start of the year – has been battered over rising inflation, unorthodox monetary policies, and anxiety around political intrusion in policy making.

Key inflation data is due on Thursday, which is expected to show consumer prices surged in January to 20-year highs. Turkish President Tayyip Erdogan last week replaced the country’s statistics institute’s head and reiterated his stance in cutting policy rates further.

Article content

“There had been at least some optimism among market participants that (Turkish) rates will now stay on hold for an extended period until inflation had come down,” said Tatha Ghose, an analyst at Commerzbank. “The view of extended flat rate has already come under question and sooner or later, small triggers will add up to start off a fresh round of lira depreciation,” Ghose added.

South Africa’s rand rose 0.6%, holding gains from the previous session after the South African Reserve Bank’s forward guidance was seen as less hawkish than market expectations, following a modest 25-basis-point rate hike last week.

Russia’s rouble firmed 0.3%, while stocks gained above 1% after data showed an expansion in Russian manufacturing activity and as elevated oil prices supported sentiment.

Article content

Emerging market investors would now look ahead to central bank decisions from the Bank of England and the European Central Bank later this week to further judge the pace of policy tightening in the developed world.

Tension surrounding the standoff between Moscow and Western capitals over Ukraine also remain in focus with the United States and UK threatening to slap fresh sanctions on Russia if it takes aggressive steps towards Ukraine.

Most emerging market currencies in Central Europe including the Hungarian forint, Czech crown and Polish zloty were steady against the euro.

The Czech National Bank is meeting on Thursday and is expected to hike interest rates by probably more than 50 basis points again, as inflation is heading near or even reaching 10% in the coming months before it starts receding.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Shashank Nayar in Bengaluru; Editing by Shailesh Kuber)