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EMERGING MARKETS-Currencies stable, stocks ride U.S. inflation outlook to record high

PUBLISHED: Thu, 11 Feb 2021 09:39:09 GMT

* MSCI EMFX index hovers at over 1-month high

* South African rand rises before state of the nation speech

* Turkish lira hovers near 6-month high

By Ambar Warrick

Feb 11 (Reuters) – Most emerging market currencies hovered near multi-week highs on Thursday after benign U.S. inflation supported risk-driven assets, while stocks touched a record high.

South Africa’s rand led gains across currencies in Europe, the Middle East and Africa, rising 0.3% ahead of President Cyril Ramaphosa’s State of the Nation address.

Investors will be watching for clues on more government support as Ramaphosa’s address comes against a backdrop of a COVID-19-hit economy and a stalled vaccination program.

However, relatively higher yields have shielded the rand from weakness in the economy. The currency, trading near a more than one-month high, also stands to gain from stronger exports to Beijing, as a row between China and Australia looks to potentially shift Chinese buyers to South Africa.

Most other EMEA currencies rose on a weaker dollar and U.S. treasury yields after a moderate U.S. inflation growth implied the Federal Reserve would have little impetus to consider tightening policy in the near-term.

The MSCI’s index of EM currencies rose 0.1% after hitting its highest level since early-January on Wednesday.

Fed chair Jerome Powell on Wednesday reiterated the bank would keep policy accommodative until the United States reached full employment.

“The Fed, ECB and other major central banks intend to keep monetary policy as loose as possible to stimulate recovery… various countries also continue making progress on vaccinating the population,” said Piotr Matys, senior EM FX strategist at Rabobank.

“Recovery will be driven by a rebound in consumer spending, supported by record-low interest rates.”

Speculation over tapering by the Fed had pushed up U.S. yields this year, pressuring EM currencies and bonds, and keeping most of them trading down for the year.

But expectations of more liquidity in the market supported EM equities, as the MSCI’s index rose 0.2% to a record high with Asian stocks contributing the most to gains, although most bourses in EMEA retreated slightly from recent gains.

Russia’s rouble rose 0.2%, trading near a three-week high. While a surge in oil prices has benefited the currency, concerns over political unrest in the country kept gains limited.

Turkey’s lira rose 0.2%, sticking near six-month highs, on continued optimism over tight monetary policy in the country.

Sentiment in Turkey improved after the central bank vowed to combat overheated inflation and rebuild the country’s severely depleted currency reserves.

Most central European currencies rose slightly to the euro, while stocks in the region gained.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see

(Reporting by Ambar Warrick in Bengaluru; Editing by Amy Caren Daniel)

(c) Copyright Thomson Reuters 2021. Click For Restrictions – https://agency.reuters.com/en/copyright.html

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