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By 3 Minute Read* Lira falls 0.4 percent, June inflation hits 2-year high* EM stocks remain flat* Rand and rouble slide on lackluster PMI readings Reuters, July 5 – Turkey’s lira, as well as most currencies in Europe, the Middle East, and Africa, sank on Monday as poor economic data weighed on the dollar, while broader emerging market currencies rose. The dollar stalled on signs of weakness in the labor market, which is a key factor for the Federal Reserve to consider tightening policy. MSCI’s index of emerging market (EM) currencies rose about 0.3 percent and was set to snap a five-day losing streak, with the dollar stalling on signs of weakness in the labor market, which is a key factor for the Federal Reserve to consider tightening policy. Last week, data showing growing US unemployment halted a dollar run and boosted emerging market assets, which had been under pressure from the Fed’s hawkish signals. However, currencies across Europe, the Middle East, and Africa (EMEA) fell on Monday, with Russia’s rouble dropping 0.4 percent to 73.3575 per dollar as oil prices fell. The service sector in Russia grew for the sixth month in a row in June, but the rate of expansion appeared to be decreasing. After inflation rose far more than predicted to 17.53 percent in June, its most in two years, Turkey’s lira gave up early gains and plummeted as much as 0.4 percent against the dollar to 8.7105. This puts pressure on Turkey’s Central Bank (CBT) to raise interest rates and protect the currency, but it also sets the stage for a battle with President Tayyip Erdogan’s unconventional stance that high interest rates create inflation. “The possibility of the CBT voluntarily decreasing rates will vanish, but this will move the central bank closer to a showdown with the President… In opposition of pressure from the president, who has backed the lira, CBT has maintained a hawkish tone so far “Commerzbank’s FX and EM analyst Tatha Ghose said. The depreciation of the Turkish lira intensified when Erdogan fired a hawkish central bank governor in March, the latest in a line of governors fired by Erdogan in the last two years. The rand fell 0.1 percent against the dollar as statistics revealed that private sector activity in South Africa grew at a slower pace in June, owing to disruptions created by new COVID-19 measures. Hungary’s forint and the Czech crown both climbed marginally versus the euro in Central Europe. This year, hawkish central banks have backed both currencies. Emerging market equities were flat, with the MSCI Emerging Markets Index slipping 0.04 percent lower. Due to a lack of quick clues in the United States, most EMEA stocks reacted in a similar manner. See tmsnrt.rs/2egbfVh for a GRAPHIC of developing market FX performance in 2021. See tmsnrt.rs/2OusNdX for a GRAPHIC on MSCI emerging index performance in 2021. FOR THE LATEST NEWS IN THE EMERGING MARKETS See the market report for CENTRAL EUROPE. See the TURKISH MARKET REPORT. See the RUSSIAN market report. Ambar Warrick contributed reporting, and Kirsten Donovan edited the piece./nRead More

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