By Shreyashi Sanyal
Aug 13 – Emerging market currencies firmed on Thursday, against a dollar that lost ground as hopes of more stimulus in the United States waned, while investors awaited a meeting between Washington and Beijing to discuss the Phase 1 trade deal over the weekend.
Most major currencies in developing economies in Europe, Middle East and Africa rose, with Asian currencies also in the black.
The U.S. dollar, which is already weighed down by a decline in Treasury yields, fell further as investors remained unsure that there would be a compromise between Republicans and Democrats over additional coronavirus aid.
“Investors should be prepared for a risk-off episode in the near term in case Congress fails to compromise on a major new fiscal stimulus,” BCA Research strategists wrote in a client note.
“Ultimately the U.S. Congress will pass a major stimulus bill worth around $2.5 trillion, but short-term execution risks are elevated.”
Russia’s rouble firmed 0.3%, while South Africa’s rand edged higher as trading remained cautious ahead of a meeting between the United States and China, with ties between the two nations worsening in the recent few weeks after the Trump administration banned popular Chinese apps and slapped sanctions on high ranking officials.
“China is reportedly planning to add more topics including recent bans on apps operated by Chinese companies,” said Hao Zhou, economist at Commerzbank.
“U.S. officials (are also likely to) demand more from China’s side, therefore the risks remain high as the meeting might end up with an unpleasant mood.”
Even as the dollar weakened, the Turkish lira struggled to stay afloat amid rising worries of a full-blown crisis, as markets look towards the central bank for more decisive action to stabilise the currency. The lira is among the worst performing emerging market units so far this month, with declines of 5%.
Currencies in central and eastern Europe including Hungary , Poland, Romania and the Czech Republic, were mostly flat against a firming euro.
Stocks in the developing world rose for the third straight day, with the MSCI index for emerging market stocks rising 0.2%.
Johannesburg stocks opened 1% lower as shares in lender Absa fell over 5%, a day after it warned its half-year profits could be almost wiped out as a result of the coronavirus crisis.
For GRAPHIC on emerging market FX performance in 2020, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see https://tmsnrt.rs/2OusNdX
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For CENTRAL EUROPE market report, see
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For RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Kevin Liffey)