Emerging market currencies decline ahead Fed’s policy decision

EM currencies decline: Emerging market currencies saw a slight dip on Monday as the dollar stabilised in anticipation of the US Federal Reserve's forthcoming policy decision. Meanwhile, on the stock market front, China spearheaded gains in developed world equities following optimistic economic data.

While most emerging market currencies saw a decline, the Russian rouble defied the trend by strengthening 1 per cent to 91.8 against the dollar, rebounding from a recent three-month low against the euro. The currency's resilience follows President Vladimir Putin's resounding victory in Russia's election, solidifying his dominance amid geopolitical tensions with the West.

Despite the rouble's relative stability, other currencies faced downward pressure, with the Turkish lira plummeting to a record low of 32.39 per dollar and the South African rand slipping. This trend reflects broader challenges confronting emerging market currencies this year, exacerbated by uncertainties surrounding the trajectory of US interest rates amidst a resilient American economy.

In light of recent inflation data, investors are reassessing expectations of imminent rate cuts by the Federal Reserve. The focus now shifts to the Fed's policy meeting on Wednesday, where market participants eagerly await any revisions to the central bank's projections for rate adjustments throughout the year.

As central banks in several countries convene this week, including Britain, Australia, and Turkey, market sentiment hinges on their respective policy decisions. Of particular note is the Turkish central bank's meeting on Thursday, amidst mounting calls for a rate hike in response to escalating inflation, which surpassed economists' forecasts.

Despite currency woes, emerging market equities saw a modest uptick, with the MSCI's gauge rising by 0.4 per cent. China's CSI300 index notably closed up approximately 1 per cent, buoyed by robust factory output and retail sales data for the January-February period. This positive economic performance offers a glimmer of hope for policymakers grappling with broader economic challenges in 2024.

(With Reuters inputs)