Currencies

Currencies meander after Fed rate cut pushback, PMIs in focus

NEW YORK, Feb 1 — Emerging market currencies were range-bound against a firm dollar on Thursday after Federal Reserve Chair Jerome Powell pushed back against hopes of an early rate cut, while stocks edged higher as investors digested mixed business activity data from the region.

MSCI’s index of emerging market (EM) currencies was muted at 0922 GMT, while the dollar held close to its highest level since mid-December.

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The Fed held rates steady late Wednesday, as widely expected, but Powell, at a conference following the decision, said a rate cut at the March meeting was unlikely, leading investors to shift bets of the first cut to May.

“Markets have a tendency of being impatient when waiting for major central banks led by the Fed to start monetary policy easing after being hooked over many years…to low-interest rates,” said Piotr Matys, senior FX analyst at In Touch Capital Markets.

“This explains why investors ended up disappointed with remarks from Chair Powell. Consequently, the dollar is broadly stronger and EM currencies are weaker.”

The South African rand slipped 0.1 per cent against the dollar, and the Israeli shekel moved 0.2 per cent lower.

Asian currencies were mixed with China’s yuan down 0.2 per cent versus the dollar.

A gauge of regional stocks rose 0.4 per cent after two straight days of losses.

EM assets started 2024 on a sour note, logging declines in January due to uncertainty around the timing of U.S. interest rate cuts and fresh evidence of China’s uneven economic growth.

China’s blue-chip index closed up 0.1 per cent on Thursday after a private-sector survey showed the country’s factory activity expanded modestly in January. Hong Kong’s Hang Seng gained 0.5 per cent.

South Korean shares advanced 1.8 per cent following data which showed domestic factory activity expanded in January for the first time in 19 months.

Indian shares lost momentum after the government presented its last budget before a national election due by May. The country’s factory activity expanded at its fastest pace in four months in January.

In other news, Pakistan’s election panel has summoned top security officials for a meeting on Thursday to discuss increasing violence in the country’s western provinces ahead of next week’s national election. — Reuters

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