The American Dollar, on Thursday, June 29, fell to near nine-month lows and a Wall Street rally boosted emerging stocks 0.5 percent after two days of losses, though central European bond markets stayed fragile with an eye on German yields.
Emerging currencies also mostly firmed against the dollar, with China’s yuan touching a seven-month high. The rouble also rose 0.3 percent, buoyed by oil prices firming for the sixth straight day.
Recent hawkish talk from Western central banks has driven German short-term yields to the highest in a year and the euro to a one-year high – but emerging markets have been relatively sanguine thanks to a better growth and current account picture at home as well as a relatively subdued U.S. yield picture.
“Markets have been able to swallow this in a better way than in the past,” said Danske Bank analyst Jakob Christensen, noting stronger global economic growth.
“In the euro zone, there is quite a strong economic momentum that is helping risk sentiment in general and, with that, emerging markets.”
A financials-led rally on Wall Street allowed emerging equities also to rebound. Hong Kong rose 1 percent, led by a 4 percent jump in HSBC and a 2 percent gain on the financials index.
Hong Kong’s main bourse shrugged off fresh falls in its small-cap market, which hit a new record closing low.
Euro-crosses in central Europe, however, were under pressure, with the Polish zloty and Hungarian forint both slipping 0.3 percent against the single currency and bond yields staying elevated.
Polish 10-year yields touched new five-week highs , up almost 20 basis points this week, while Hungarian yields are at three-week highs.
“There will be spillover from higher yields in the euro area to these economies. We do see that the very strong economic growth picture there is also prompting higher yields, given that inflation will be on the rise eventually,” Christensen said.
But ING Bank analysts played down the risk to the region after an initial adjustment to higher Bund yields.
“To the extent to which the rise in Bund yields is gradual, and the ECB avoids a U.S. ‘taper-tantrum’-like bond sell-off, then short-term downside risk to central European currencies versus the euro via the bond sell-off channel should be limited and short-lived,” they told clients.
The Czech crown was flat before a central bank rate decision that is expected to keep policy unchanged but could signal the timing of its first rate rise.
Many Gulf markets remained shut for Eid but the Qatari riyal appeared to have stabilised around the official 3.64 per dollar peg after a large fall in thin liquidity earlier this week . The currency has also firmed in forward markets, back towards the peg level.
However, Qatari debt insurance costs rose to a 16-month high of 120 basis points, according to IHS Markit data.
