Steady dollar casts shadow on EM currencies as growth fears persist

A firm dollar put pressure on emerging market currencies and stocks at the start of a new quarter on Friday as disappointing economic data from across the world cemented fears of a global recession, Reuters reported.

Soaring inflation and hawkish comments from major central bank chiefs this week have steered investors out of risky emerging markets into safe-haven assets such as the dollar and government bonds.

The MSCI’s index of EM currencies .MIEM00000CUS dipped 0.1%, heading towards mid-May lows, while its equities counterpart .MSCIEF dropped 0.7%. Both the indexes on Thursday marked their worst quarterly performances since the pandemic-led crash in March 2020.

“The global economic and market environment has been deteriorating for EMs that continue to face multiple headwinds, compounded by more hawkish DM and EM central banks,” strategists at Generali Investments said in a note. “In addition to a duration issue, EM external debt is also under pressure from spread widening.”

Data on Thursday showed U.S. consumer spending rose less than expected in May, while surveys from Asia and Europe pointed to stalling manufacturing activity, even though China recorded an expansion.

The South African rand ZAR=D3 dipped to trade at 16.35 per dollar, nearing a new low for the year.

The currency hit a 20-month low in the previous session after South African state power utility Eskom said it would continue the worst power cuts the country has seen in more than two years later on Thursday and Friday.

The Turkish lira TRYTOM=D3, among the worst performing currencies this year, slipped to 16.75 per dollar, while the Indian rupee INR=IN breached the 79-per-dollar level to hit a fresh record low.

Euro-linked currencies such as the Hungarian forint EURHUF= and Polish zloty EURPLN= weakened as data showed eurozone inflation hit yet another record high in June, firming the case for rapid European Central Bank rate hikes starting this month.

Among stocks, tech-heavy bourses in Asia led the losses after a report said the world’s biggest contract chipmaker TSMC 2330.TW saw clients scaling back orders and U.S. firm Micron Technology MU.O reported a weak outlook.

Taiwan’s economic fundamentals are good and investors should remain calm and rational, and not panic, Deputy Finance Minister Frank Juan told Reuters on Friday, after the country’s stock index .TWII closed down 3.3%, making it the worst performer in Asia.