EMERGING MARKETS – Currencies hit by firm dlr ahead of Fed Chairman’s testimony, stocks slide
* Powell to begin two-day congressional testimony
* South Africa consumer inflation rises in May
* Czech koruna stagnate ahead of CNB rate decision
* Sri Lanka plans donor conference with China, India and Japan
By Shreyashi Sanyal
June 22 (Reuters) – A stronger dollar hit emerging market currencies on Wednesday ahead of U.S. Federal Reserve Chairman Jerome Powell’s two-day testimony to Congress, as stocks gave up all gains they had made during the previous session.
The MSCI index for emerging market currencies fell 0.4% as a risk aversion crisis took hold, with investors awaiting guidance from Powell on whether another 75 basis point hike interest rates is likely at the Fed’s July meeting.
This helped push the dollar up 0.4%, while the South African rand, seen as a surrogate currency for the developing world, weakened 0.7%.
Data showed that headline consumer inflation in South Africa accelerated to 6.5% year-on-year in May from 5.9% in April. The upper limit of the central bank’s target range is between 3% and 6%.
A hawkish tilt by major central banks on soaring inflation has raised fears of a global recession and a flight to safety, while most analysts are also pointing to a slowdown in China hurting many major emerging market players. .
Emerging market stocks fell more than 2%, on track for their biggest one-day percentage decline in nine days. Heavy Chinese stocks and Hong Kong stocks fell amid growing concerns over the impact of COVID-19 restrictions.
The Turkish lira has steadily weakened against the greenback as investors await the latest official reserve data from the central bank on Thursday. Foreign exchange reserves have fallen sharply in Turkey, most recently due to billions of dollars the bank sold in market interventions to stem a currency crisis in December.
Turkey’s consumer confidence index hit a record high in June on fears of runaway inflation.
The Czech koruna was stable ahead of a Czech National Bank meeting, with expectations of a 75 basis point hike to 125 basis points in the key two-week repo rate.
This will be the bank’s last meeting before new Governor Ales Michl takes over. Michl has consistently voted against rate hikes during the central bank’s one-year tightening cycle, totaling 550 basis points so far.
“Even though the dovish threat has not materialized, the market consensus still anticipates this significant 75 basis point rate hike today,” said Tatha Ghose, FX and EM analyst at Commerzbank.
“Inflationary pressures in the region have not abated. Therefore, while political risk has subsided somewhat, CNB is unlikely to backtrack on its promise of a large rate hike.”
Sri Lanka will hold a donors’ conference with China, India and Japan as it seeks foreign aid to find a way out of its worst economic crisis in decades, Prime Minister Ranil Wickremesinghe has told parliament.
For 2022 Emerging Markets FX performance chart see http://tmsnrt.rs/2egbfVh For 2022 MSCI Emerging Market Index performance chart see https://tmsnrt.rs/2egbfVh
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For the RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Hugh Lawson)