Emerging market currencies remained subdued on Tuesday as the dollar rallied on the eve of the release of key US consumer price data, while Chinese shares lost steam after rising last session on signs of stabilization in the second largest economy in the world.
The MSCI EM Currency Index remained around the unchanged line at 0912 GMT, while shares fell 0.2%.
Emerging market assets got a boost on Monday after strong credit data and new stimulus from China supported risk sentiment, with the Chinese yuan recovering from a 16-year low against the dollar.
On Tuesday, China’s flagship stock index fell 0.2%, while the yuan held steady, after China’s central bank warned against overshooting the currency’s value, comforting traders in their expectations of greater near-term stability.
China’s economy will be weaker than expected this year and next due to a struggling real estate market, according to a Reuters survey of economists, who predict growth of 5.0% this year, lower than the 5.5% forecast during a survey conducted in July.
U.S. consumer price data for August, due Wednesday, will help shape the outlook for U.S. yields and the dollar. The data is expected to show that core inflation has eased to 4.3% on an annual basis.
“Stronger-than-expected inflation could convince people that the Fed still has work to do,” said Jonathan Petersen, senior economist at Capital Economics.
“This could push US yields higher versus other countries, which would be positive for the dollar and negative for the currencies of Central and Eastern Europe and other emerging markets.
Russia’s ruble rose to its highest level in almost six weeks against the dollar before paring gains as President Vladimir Putin vowed not to take any sudden steps to limit the ruble’s volatility.
Elsewhere, central and eastern European currencies also fell, pressured by growing expectations for monetary policy easing due to slowing inflation in the region.
The Czech koruna lost 0.3% against the euro, reaching an eleven-month low. Board member Jan Prochazka said the central bank could discuss a possible rate cut at its meeting in September, although a cut is not expected at this time.
Poland’s zloty fell 0.8% against the euro, hitting its lowest level since April and erasing almost all of its 2023 gains.
For the CHART on the performance of emerging currency markets in 2023, see http://tmsnrt.rs/2egbfVh. For the CHART on the performance of the MSCI Emerging Markets Index in 2023, see https://tmsnrt.rs/ 2OusNdX
For information about emerging markets
For the CENTRAL EUROPE market report, see
For market research on TURKEY, see
For the RUSSIA market report, see (Reporting by Amruta Khandekar; Editing by David Evans)