*Hungary's Forint rises as c.bank commits to stability measures*Dollar, U.S. Treasury yields fallBy Devik JainOct 26 (Reuters) - Emerging market curre
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Hungary’s Forint rises as c.bank commits to stability measures
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Dollar, U.S. Treasury yields fall
By Devik Jain
Oct 26 (Reuters) – Emerging market currencies and stocks rose on Wednesday as the dollar weakened and wider risk sentiment improved on hopes of a less aggressive Federal Reserve, while the South African rand strengthened ahead of a budget speech later in the day.
The MSCI’s index for emerging markets currencies gained 0.9%, while stocks added 2.2% on boost from 0.8% rise in heavyweight China shares, . Romanian, South African, Polish and Turkish stock indexes also gained between 0.1% and 1.1%.
The dollar index fell 0.7% and U.S. Treasury yields eased after weak U.S. economic data suggested that the Fed’s aggressive policy to tame inflation is beginning to bite.
Emerging market currencies are highly exposed to global factors such as U.S. monetary policy tightening, which has pressured them by bolstering the dollar.
“We definitely see another revival of some Fed pivot hopes. Every time we are seeing the smallest signs that the Fed may be getting a little less hawkish – the market jumps at it,” said Witold Bahrke, senior macro strategist at Nordea Asset Management.
“In order for us to get more long term bullish on EM rather than tactically constructive here, we also need signs of capitulation, we are closer to a bottom in economic momentum and it’s too early for that.”
The South African rand rose 1.2% to trade at 17.9898 against the dollar. The finance minister is expected to update economic forecasts and make emergency changes to spending.
Hungary’s forint gained 0.9%, trading at 410.47 per euro, a day after its central bank left its base rate unchanged, while committing to its targeted emergency measures, including an 18% quick deposit scheme, to stabilize markets.
Elsewhere, the Polish zloty and the Czech crown dipped 0.1% each.
The Czech National Bank’s board member Tomas Holub said higher interest rates were needed to anchor inflation expectations. The two-week repo rate has stayed at 7.00% since June, while inflation has accelerated to 18%.
While emerging markets started their monetary policy tightening cycles well before developed economies, inflation has consistently exceeded expectations in those countries.
Brazil’s central bank decision is also due later in the day, where rates are expected to remain unchanged at 13.75%.
Meanwhile, the Chinese yuan snapped a four-day losing streak to log strongest close since Oct. 12, after it was reported that some Chinese state-owned banks had sold dollars in onshore and offshore markets to curtail the beaten-down currency’s fall.
Chinese assets had sold off sharply in recent sessions after President Xi Jinping unveiled a leadership team of loyalists that heightened fears economic growth will be sacrificed for ideology-driven policies. 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
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For RUSSIAN market report, see (Reporting by Devik Jain in Bengaluru Editing by Tomasz Janowski)
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