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EM FX dips after Fed outlook, stocks edge up

US Federal Reserve left borrowing costs untouched on Wednesday.
US Federal Reserve Chairman Jerome Powell's decision led foreign-exchange markets to dial back some of their bets that US rates would fall by the end of the year. Picture: Bloomberg

Emerging-market currencies weakened against the dollar on Thursday after US Federal Reserve Chairman Jerome Powell said he saw no reason for a change in interest rates.

Powell’s comments on Wednesday led foreign-exchange markets to dial back some of their bets that US rates would fall by the end of the year. His remarks came after Wednesday’s Fed meeting left rates unchanged, as expected.

“Last night was a bit of a hawkish twist — the idea that Powell saw downward inflationary pressure as a transitory effect definitely caught markets by surprise,” said Simon Harvey, an analyst at Monex Europe.

MSCI’s index of emerging-market currencies dipped 0.1%. Its developing-world stock index moved as far in the other direction.

South Africa‘s rand weakened while South African stocks rose 0.3% on gains among health care stocks and financials.

Turkey’s lira was down 0.1% and on course for its lowest close in nearly seven months. Turkish stocks rose 0.6%, mainly on gains by financials and industrials.

India’s rupee rose, helped by a half-percent fall in Brent futures. India is a net oil importer.

Russia’s rouble softened 0.4%, while equities gained 0.6%, with Sberbank’s common shares rising about 1%.

Hong Kong stocks rose 0.8%. Mainland China’s markets were closed for the Labour Day holiday.

In emerging Europe, the Czech crown slipped 0.1% against the euro, after a report that local manufacturing sentiment in April was the weakest since 2012.

The Czech central bank is expected to raise its main interest rate to 2% later in the day, ending a recent pause in a two-year tightening cycle undertaken to tame domestic inflation pressures.

Czech stocks rose 0.8% as they recovered from Tuesday’s close, the lowest in a month and a half. That loss came amid talk about introducing new taxes.

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