* MSCI EMFX index moves at over 1-month high
* South African rand rises before the country’s state speech
* Turkish lira is moving near 6-month high
February 11 (Reuters) – Most emerging market currencies fell near multi-week highs on Thursday after unusually U.S. inflation backed a fund led by risk, while stocks hit a high level.
The South African rand led gains over currencies in Europe, the Middle East and Africa, rising 0.3% ahead of President Cyril Ramaphosa’s State of the Nation launch.
Investors will be on the lookout for more government support as Ramaphosa’s launch comes against a backdrop of a COVID-19-hit economy and a relentless vaccination program.
However, a relatively higher yield has protected the rand from economic weakness. The currency, which is trading near a one-month high, is also benefiting from stronger exports to Beijing, as a line between China and Australia looks to move Chinese buyers to South Africa.
Most other EMEA currencies rose on a weaker dollar and U.S. treasury yields after moderate U.S. inflation growth meant the Federal Reserve would have little momentum to consider a tightening policy any time soon.
The MSCI index of EM currencies rose 0.1% after hitting a record high in early January on Wednesday.
Fed chairman Jerome Powell said Wednesday that the bank would maintain accommodation until the United States reaches full employment.
“The Fed, the ECB and other major banks intend to keep monetary policy as loose as possible to encourage recovery … a number of countries are also making progress on population vaccination,” Piotr said. Matys, Rabobank’s senior EM FX expert.
“Recovery will be driven by a reversal of consumer spending, supported by low interest rates.”
Profitability about tapering with the Fed had pushed U.S. yields this year, squeezing EM currencies and bonds, and keeping most of them trading down for the year.
However, increased market liquidity was expected to support EM equities, as the MSCI index rose 0.2% to a high with Asian stocks contributing the most to gains, although its returns most shops in EMEA are a little off from the recent gains.
The Russian ruble rose 0.2%, trading nearly three weeks high. While rising oil prices have benefited the currency, concerns about political unrest in the country have kept gains limited.
Turkey’s lira rose 0.2%, sticking near six-month highs, on continued optimism about the country’s tight monetary policy.
Attitudes in Turkey improved after the central bank pledged to fight overheated inflation and rebuild the country’s severely depleted financial resources.
Most central European currencies rose slightly to the euro, while stocks in the region benefited.
For GRAPHIC on emerging market FX performance in 2021, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI index performance appearing in 2021, see tmsnrt.rs/2OusNdX
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Reporting by Ambar Warrick in Bengaluru; Edited by Amy Caren Daniel