Emerging market currencies fall as dollar firms

The MSCI’s index for emerging market currencies dropped 0.2% for the second straight day, as the dollar remained perched near two-year highs

Emerging market currencies fell against a stronger dollar on Wednesday on worries over aggressive actions by the U.S. central bank to curb inflation, and as the anticipation of more Western sanctions on Russia pressured stocks.

The MSCI’s index for emerging market currencies dropped 0.2% for the second straight day, as the dollar remained perched near two-year highs.

Fed Governor Lael Brainard said she expects a combination of interest rate hikes and a rapid balance sheet runoff to bring U.S. monetary policy to a ‘more neutral position’ later this year, with further tightening to follow as needed.

Investors are now watching out for the minutes from the Fed’s March meeting later in the day.

What now matters is what the Fed does in May and what signals it sends out regarding interest rates this year, said Antje Praefcke, FX and EM analyst at Commerzbank.

Investors are questioning whether the U.S. central bank will go above a 25 basis point rate hike next month and repeat it for the remainder of the meetings through 2021, Praefcke added.

The MSCI’s index for EM stocks fell 1.1%, with Russian stocks down 0.7% in early trading. Russia’s rouble dipped 0.2% against the dollar in Moscow.

Asian emerging markets took cues from declines in China, with both stocks and the onshore yuan falling on concerns over a worsening economic growth outlook after Shanghai extended its coronavirus lockdown.

A survey showed activity in China’s services sector contracted at the sharpest pace in two years in March due to a surge in coronavirus cases.

Commodity-exposed South African stocks shed 0.2%, weighed by miners after prices of most industrial metals dropped on Wednesday.