Most emerging market currencies were subdued against a sturdy dollar on Friday as investors digested hawkish signals from the U.S. Federal Reserve, while stocks hit a more than two-year low on jitters around a global economic slowdown.
MSCI’s index of EM (emerging market) stocks was down 1% and headed for its fourth straight weekly decline, in a week dominated by central bank policy moves including a super-sized 75 basis point interest rate hike by the Fed.
The index has declined 26% so far this year, as aggressive policy tightening, geopolitical tensions and growing recession concerns push investors towards safer assets such as the U.S. dollar.
EM equities saw outflows of $2.5 billion this week, compared with $1.7 billion last week, while bond outflows reached $2.6 billion from $1.5 billion last week, weekly data from JPMorgan citing EPFR Global showed.
“Everything is negative for EMs these days… In Europe, the question of a recession is on the table, and the geopolitical situation is not improving – everything is pointing to negative sentiment,” said ING strategist Frantisek Taborsky.
Among EM currencies, South Africa’s rand was down 0.9%, erasing previous session gains when the country’s central bank raised rates by 75 basis points, as expected.
The Turkish lira was also down 0.4%, a day after its central bank delivered a surprise 100-basis-point rate cut.
Most Central and Eastern European currencies were subdued against the euro, with Romania’s leu and the Hungarian forint down about 0.2 % each. Moody’s is expected to publish a ratings review report on Hungary later in the session, with analysts expecting a downgrade.
“It’s a question of whether Hungary will get access to EU (European Union) money or not. Hungary will find some kind of deal but it will take time,” Taborsky added.
The Indian rupee was up 0.2% against the dollar. The Reserve Bank of India is set to raise rates again next week with a slim majority of economists in a Reuters poll expecting a half-point hike.
Meanwhile, Egypt’s central bank, bucking analyst expectations of a hike by 100 bps, left its overnight interest rates unchanged on Thursday.
Sri Lankan authorities will hold talks with international creditors on Friday to start the process of restructuring billions of dollars of debt. 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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