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EMERGING MARKETS-Currencies rally after Fed shift; Russian rouble up with eyes on Kremlin

Credit: REUTERS/VASILY FEDOSENKO

An index of emerging market currencies hit its highest in nearly six months as the dollar slid after the U.S. Federal Reserve's new strategy, while Russia's rouble firmed with eyes on the Kremlin after Belarus' leader sought help amid protests.

By Susan Mathew

Aug 28 (Reuters) - An index of emerging market currencies hit its highest in nearly six months as the dollar slid after the U.S. Federal Reserve's new strategy, while Russia's rouble firmed with eyes on the Kremlin after Belarus' leader sought help amid protests.

Fed Chair Jerome Powell unveiled a new monetary policy strategy which pledged to address "shortfalls" from the "broad-based and inclusive goal" of full employment, and less on worries about too-high inflation, signalling lower interest rates for longer.

EM stocks .MSCIEF hovered near seven-month highs, although a rally in most Asian shares failed to carry over as equities in emerging Europe, Middle East and Africa tracked a lower open on the western European bourses. .EU

MSCI's index of developing market currencies .MIEM00000CUS rose 0.2% as the greenback slid against major rivals, with lower U.S. interest rate environment supporting rate differentials with the higher-yielding emerging markets. FRX/

Russia's rouble RUB= looked to end a tumultuous week about 0.3% higher. On request from Belarusian leader Alexander Lukashenko, the Kremlin set up a police force to be deployed only if unrest spun out of control in the ex-Soviet nation.

The Kermlin's comments "do not remove a tail risk of a potential Russia military intervention (that we consider the biggest risk for the Russian assets) but more like a hope that protesters' moves will be exhausted on their own," said Credit Suisse analyst Alexey Pogorelov.

Amid concerns about ties with the West, the Kremlin also defied calls from Germany, the United States and other powers to investigate the suspected poisoning of opposition leader Alexei Navalny.

Political uncertainty seemed to be the theme of the day with Japanese Prime Minister Shinzo Abe set to resign for health reasons later, while in Romania, the opposition said they have enough votes to topple the cabinet in a no-confidence vote scheduled for Monday.

Romania's leu EURRON= traded flat, sitting out the rally in riskier currencies. Commerzbank FX analyst Elisabeth Andreae said it seemed likely that Prime Minister Ludovic Orban's government will continue governing until elections in December in which case it should have little impact on the leu.

South Africa's rand ZAR= rose 0.9%, while gains in Turkey's lira TRY= were limited after minutes of the central bank's last meeting showed indications of a sustained rise in inflation.

Ahead of GDP data next week, a Reuters poll showed Turkey's economy may have contracted nearly 12% in the second quarter due to the coronavirus lockdown. Flare-up in tensions with Greece regarding energy resources in the Mediterranean were also being watched for.

(Reporting by Susan Mathew in Bengaluru; editing by Uttaresh.V)

((susan.mathew@thomsonreuters.com; +91-80-6749-1130;))

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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