Emerging currencies post cautious gains as Turkish lira suffers

Feb 1 (Reuters) – Emerging market currencies posted cautious gains on Tuesday, supported by a weaker dollar, with the focus on economic data and central bank decisions in Europe later this week, while the Turkish lira weakened on the risks of further rate cuts.

The MSCI Emerging Markets Currency Index (.MIEM00000CUS) rose with the dollar index down 0.3%, adding to a drop of almost 0.6% in the previous session. Developing stocks (.MSCIEF) rose 0.3%, but with lower volumes as Chinese markets were closed for the Lunar New Year holiday.

A slew of data in the developing world pointed to slowing growth, with PMI figures from Hungary, Turkey, India, Poland and the Czech Republic all below the level of the last month, although still in expansion territory. Data from South Africa and Russia showed an acceleration in growth. Read more

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The Turkish lira was the outlier among developing currencies on the day, weakening by 0.5%. The pound – which fell 44% last year and 0.4% since the start of the year – has been battered by rising inflation, unorthodox monetary policies and concern over the political intrusion into policy-making.

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

“There was at least some optimism among market participants that (Turkish) rates will now remain unchanged for an extended period until inflation has come down,” said Commerzbank analyst Tatha Ghose.

“The view of an extended flat rate has already been questioned and sooner or later small triggers will add to trigger a new wave of lira depreciation,” Ghose added.

The South African rand rose 0.6%, retaining gains from the previous session after the Reserve Bank of South Africa’s forecast was seen as less hawkish than market expectations, following a modest rate hike by 25 basis points last week.

The Russian ruble strengthened 0.3%, while stocks (.IMOEX) gained more than 1% after data showed an expansion in Russian manufacturing activity and high oil prices supported the feeling. Read more

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

Tension surrounding the standoff between Moscow and Western capitals over Ukraine also remains a focus, with the US and UK threatening to impose new sanctions on Russia if it takes aggressive action. towards Ukraine.

Most Central European emerging market currencies, including the Hungarian forint, Czech koruna and Polish zloty, remained stable against the euro.

The Czech National Bank meets on Thursday and is expected to raise interest rates again by probably more than 50 basis points, with inflation heading towards or even reaching 10% in the coming months before starting to recede.

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For the GRAPH on the performance of the MSCI emerging index in 2021, see https://tmsnrt.rs/2OusNdX

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Reporting by Shashank Nayar in Bengaluru; Editing by Shailesh Kuber

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