Currencies bounce against wobbly dollar, stocks hit one-week high

Most major emerging market currencies rose against the dollar and stocks hit a one-week high, while Turkey’s lira was little changed ahead of its central bank seen keeping policy rate unchanged.

The dollar index weakened after data showed US consumer confidence rose to an eight-month high in December as the labour market remained strong, adding a new shine to riskier emerging market assets.

High-yielding favourites including South Africa’s rand and Mexico’s peso firmed about 0.4% each, as markets count down days till the year end amid thinning volumes.

The MSCI’s index for EM currencies was a touch higher on Thursday, but down 4.6% for the year as tighter monetary conditions across the world made it harder to borrow money and hawkish messages from the US Federal Reserve kept the greenback in favour.

Still, not all developing market currencies were equally hit as most Latin American units benefited from their exposure to commodities as prices of oil, base and precious metals surged for better part of 2022.

The MSCI’s index for Latam FX is up 15.6% this year, its first rise in three years. Emerging market stocks enjoyed a bounce, last up 1.1% amid broader improvement in risk appetite.

Turkish stocks added 1%, while Russian equities gained 0.7%.

Developing world assets have also been hit this year by worries of a slowdown in China as it now embarks on less restrictive COVID policies amid inadequate vaccinations.

“The decline in US interest rates and mushrooming global economy tied to China provided tailwinds helping propel EM debt and equities, but this has been working in reverse in 2022–tailwinds are now headwinds,” said Peter Marber, head of emerging markets at Aperture Investors.

But Marber argues, EM debt, equities and currencies have cheapened dramatically in 2022, offering investors an opportunity to beef up exposure at bargain prices.

The Turkish central bank is expected to keep its benchmark lending rate at 9% later in the day after it said last month that it decided to end the easing cycle, having managed to cut rates to match with President Tayyip Erdogan’s call for single-digit rates.

The lira was flat.

Russia’s rouble fell to its weakest since late April 72 against the dollar on mounting fears over the impact of sanctions on Russian oil and gas.

The currency is on track to fall more than 15% this month.