Currencies firm, but rising interest rate risks weigh on emerging market outlook

Feb 7 (Reuters) – Most emerging market currencies rose on Monday, taking support from a stable dollar, although a surprise jump in U.S. jobs data last week bolstered bets for a more aggressive Federal Reserve, casting a pall over the outlook for emerging assets.

An index of emerging market currencies (.MIEM00000CUS) firmed 0.1% as the Chinese yuan edged higher after returning from a week-long Lunar New Year break.

The January payrolls report showed on Friday that the U.S. economy added far more jobs than initially expected, giving way to more aggressive tightening from the Federal Reserve at its January monetary policy meeting. March. Read more

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A higher interest rate regime in the United States could lead to capital outflows and currency depreciation in emerging markets.

The MSCI Emerging Markets Equity Index (.MSCIEF) slid around 0.2%, after gaining 2.5% the previous week, as some tech names faltered on rising risks from a faster pace. rapid global monetary tightening.

Investors are now eagerly awaiting monetary policy decisions in emerging economies and smaller currency markets, with central bank meetings in Sweden, Russia, Poland and Mexico scheduled for this week. Central banks are expected to raise rates further and maintain their hawkish policy.

The Russian ruble rose 0.3% to a more than three-week high on support from high oil prices, but geopolitical pressures around Ukraine and the West simmered.

French President Emmanuel Macron is due to travel to Moscow after meeting with US President Joe Biden on Sunday. Read more

“While the outcome of the current diplomatic efforts remains uncertain, markets have become increasingly confident that there is no significant risk of a serious escalation of the Russia-Ukraine crisis,” Pheonix Kalen wrote. , head of EM strategy at Societe Generale in a note to clients.

The dollar index, which compares the greenback to a basket of currencies, held steady ahead of inflation figures due later this week, likely cementing expectations of a Federal Reserve rate hike in March.

The Turkish lira strengthened by around 0.2%, while the South African rand remained stable.

Investors were awaiting December mining and manufacturing figures in South Africa and a state of the nation address from President Cyril Ramaphosa due this week. Ramaphosa typically uses the annual address to parliament to announce reforms in key policy areas.

Emerging currencies from central and eastern Europe also strengthened against a weaker euro, with the Hungarian forint, Polish zloty and Czech koruna all gaining between 0.1% and 0.3%.

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Reporting by Shashank Nayar in Bengaluru Editing by Peter Graff

Our standards: The Thomson Reuters Trust Principles.

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