Most currencies make minor moves, CB meetings in focus

Most emerging market (EM) currencies made small moves on Monday as surging number of coronavirus cases kept risk appetite muted ahead of a slew of emerging market central bank meetings this week, with focus also on a European recovery fund plan.

The pound rose above $1.26 on Monday and recovered from an early-morning, 20-day low against the stronger euro, but investors remained bearish as the bleak economic outlook and Brexit risks weighed on the currency.

The euro retreated from the 19-week high of $1.1467 it reached on Monday amid hopes the European Union would agree on a recovery fund to help revive EU economies hit by the COVID-19 pandemic

Turkey’s lira was flat. The country’s central bank raised reserve requirement ratios on forex deposits for all banks by 300 basis points on Saturday, as part of the normalisation process following measures taken to counter the economic impact of the coronavirus crisis.

Turkey’s central bank is expected to continue to hold its key interest rate steady this week, while counterparts in South Africa and Russia are seen cutting their rates, according to polls conducted by Reuters.

South Africa’s rand fell 0.2 per cent against the dollar after marking its fourth straight week in the red on Friday, while Russia’s rouble struggled to hold gains as oil prices declined.

The dollar steadied as the euro jumped after European leaders said progress was being made in talks about the 750-billion-euro recovery fund to support economies in the wake of a pandemic induced lull. But emerging market currencies failed to capitalise as pandemic caution prevailed.

The World Health organisation reported a record increase in coronavirus cases for the second day in a row on Saturday, with the total rising by 259,848 in 24 hours. According to a Reuters tally, more than 14 million people have been infected globally so far, and nearly 602,000 have died.

“In the absence of any drivers from weekend news and a quiet data calendar, COVID-19 has shifted back to front and centre in currency traders’ minds,” said Jeffrey Halley, senior market analyst, Asia Pacific at OANDA. Emerging markets had rallied sharply since year lows in March on stimulus support, vaccine hopes and gradual restart of economic activities, but the recovery could lose momentum if containment measures continue into the second half of the year. Hungary’s forint firmed 0.2 per cent with the central bank expected to cut rates by 15 basis points to 0.6 per cent on Tuesday. Credit Suisse analysts await details of an expected revision of the structure of the bank’s policy rate.

Among stocks, MSCI’s index of developing market stocks rose 0.2 per cent, as heavy-weight mainland China stocks jumped as regulators signalled support for market. But the rally seemed not to have a far reach as some Asian bourses as well as main indexes of South Africa, Russia and Saudi Arabia declined. Since Friday, European Union leaders have been meeting to thrash out plans for an EU-wide coronavirus recovery fund. Signs of progress in negotiations saw the euro touch a 19-week high, pushing euro-sterling to a 20-day high around 0604 GMT.

EU leaders have made progress in Brussels after three days of talks, but they remain at odds over how to carve up the proposed 750 billion euro ($859 billion) recovery fund.

Reuters