EMERGING MARKETS-Currencies decline on dollar strength as markets focus on Fed

Credit: REUTERS/Kim Hong-Ji

By Anisha Sircar and Amruta Khandekar

Sept 20 (Reuters) - Emerging market currencies declined on Tuesday as the dollar held strong in anticipation of another large interest rate hike by the Federal Reserve, while stocks bounced following a three-week selloff in the region.

The dollar index =USD hovered near two-decade highs as investors braced for another 75-basis-point bump by the Fed on Wednesday, with some expecting a super-sized full percentage point increase. FEDWATCHFRX/

South Africa's rand ZAR= and China's yuan CNY= hovered near two-year lows, while Philippine's peso PHP= hit a record low of 57.47 against the dollar.

"Capital inflows into emerging markets are unlikely until the Fed starts reducing interest rates but that is a scenario probably for the second half of next year, so EMs are likely to remain out of favour," said Piotr Matys, senior FX analyst at InTouch Capital Markets.

Trading in the holiday-shortened week is also set to be determined by a series of other global central bank decisions, including from Brazil, Philippines, England and Japan.

Risk sentiment has taken a hit in recent weeks as traders fret over the impact of the war in Ukraine, rising recession warnings and aggressive central bank moves to rein in soaring inflation.

The Philippine central bank will likely opt for a half-point rate hike on Thursday, a Reuters poll showed.

EM stocks .MSCIEF rose 1%, tracking global shares on the view that the Fed rate hike has been priced in. MKTS/GLOB

Elsewhere, Turkey's lira TRY= slipped 0.2%. President Tayyip Erdogan said inflation is not an "insurmountable economic threat", adding it will begin to fall at the end of the year after it surged to more than 80% in August.

On Monday, Turkish lenders Isbank and Denizbank said they suspended use of Russian payment system Mir following a U.S. crackdown on institutions accused of helping Moscow skirt sanctions over the Ukraine war.

Stocks .XU100 rose 1%.

"Demand for Turkish stocks, especially banking stocks, have been robust over the past few months... but demand suddenly fell, causing quite a sharp correction, which is a reminder that in Turkey, it's quite difficult to hedge yourself against high inflation," added Matys.

China's shares .SSEC, .CSI300 inched 0.2% higher, in line with Asian peers. Beijing kept the benchmark lending rates unchanged as expected, as authorities appeared to hold off monetary easing following rapid declines in the local currency.

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

EM FX YTDhttps://tmsnrt.rs/3dpwzXU

(Reporting by Anisha Sircar and Amruta Khandekar in Bengaluru; Editing by Devika Syamnath)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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