Emerging currencies close to erasing 2023 gains as gloom deepens
EM currency gauge is up only 0.3% this year after losses
Developing-nation currencies fell for a fourth day, coming within a whisker of erasing all of this year's gains.
A loss of 0.8% this week has left MSCI Inc.'s gauge of emerging-market currencies just 0.3% up in 2023. Anxiety over the Federal Reserve potentially keeping interest rates higher for longer, China's plans to expand a ban on the use of iPhones and weak German economic data dented sentiment toward riskier assets on Thursday.
"Sluggish growth in China, a persistently hawkish Fed and the prospects of stagflation in the Eurozone are not particularly conducive factors for EM currencies," said Piotr Matys, a currency analyst at InTouch Capital Markets.
Keep updated, follow The Business Standard's Google news channel
Eastern European currencies underperformed their developing peers as the euro slipped, with the Polish zloty the biggest loser. The governor of the country's central bank, Adam Glapinski, will be under pressure to explain Wednesday's bigger-than-expected rate cut at a press conference in Warsaw later.
Turkey's lira weakened for a fifth day, even after President Recep Tayyip Erdogan appeared to back the more orthodox monetary policy of his new economic team.
Deputy President Cevdet Yilmaz and Treasury and Finance Minister Mehmet Simsek are meeting journalists to answer questions on the new medium-term program, after Erdogan — who had championed ultra-low borrowing costs in the past — said on Wednesday that "tight monetary policy" was needed to slow inflation.
China's economic troubles and the dollar's renewed vigor have weighed on emerging assets, with equities sliding for a third day. China's property developer stocks dropped following a sharp rally in the previous session that was fueled by bets on further policy support.
The Chinese yuan dropped to a 16-year low against the dollar, despite the People's Bank of China setting its daily reference rate at a stronger-than-expected level for a 54th straight day.
To encourage sustained capital inflows back into emerging markets, Beijing may have to unveil a "comprehensive package of reforms to address structural issues of the Chinese economy," and the Fed will need to signal that rates could be cut in the first half of 2024, said Matys at InTouch Capital.
Elsewhere in Asia, the ringgit weakened for a fifth day after Malaysia kept its benchmark interest rate unchanged for a second straight meeting as the country seeks to support economic growth. The policy statement no longer describes the central bank's monetary stance as "slightly accommodative," removing any residual expectation for additional tightening, said Frances Cheung, a rates strategist at Oversea-Chinese Banking Corp. in Singapore.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.
