Dollar gains hound EM currencies
06 Oct 2017 - 23:58
By Karin Strohecker / Reuters
London: Emerging stocks headed yesteday for their best week since August thanks to stellar gains in Asia, while currencies suffered at the hands of a buoyant dollar, with Turkey’s lira touching a 12-week low.
MSCI’s emerging equity benchmark gained 0.2 percent on the day and was up around 2 percent on the week. Hong Kong’s bourse flirted with a 10-year high, boosted by a strong performance from Chinese automakers and financials.
The gains reflect the upbeat mood on world stock markets.
The S&P 500 has posted six straight record high closes - the longest run since 1997 - on expectations US President Donald Trump will succeed in implementing a tax overhaul
Adding to this was data showing the world’s biggest economy was performing solidly and the US jobs reading later in the day is expected to confirm this.
The surge in optimism also lifted Treasury yields and took the dollar index to a seven-week high, which put the JPMorgan currency index, the ELMI Plus, on track for a fourth week of losses.
“Emerging market currencies are under broad-based selling pressure against the dollar, which is benefiting from growing market expectations that the Trump administration will finally make some progress on tax reforms, and some hawkish comments from Fed policymakers,” said Rabobank’s Piotr Matys.
Matys, who expected any US interest rate increases to be gradual and tax reforms to be modest, said there was still a question mark on whether the dollar rally would last.
“We think it is a corrective rebound after the market adopted a way too bearish view.” Turkey’s lira suffered the day’s biggest losses, weakening 0.7 percent to hit its lowest in nearly three months against the dollar and breaking through a 200-day moving average.
South Africa’s rand edged 0.1 percent lower.
Both currencies - seen as particularly vulnerable to US interest rate rises due to their economies’ large external financing needs - were on track for more than 1 percent falls over the week in their fourth straight week of losses.
Russia’s rouble was on track for a second week of losses.