EMERGING MARKETS-Currencies rise after Fed; Russian rouble slides on U.S. sanctions threats
Adds comments, details; Updates prices throughout
By Shreyashi Sanyal
March 17 (Reuters) - Most emerging market currencies edged higher against a weaker dollar on Wednesday, after the U.S. Federal Reserve pledged to keep interest rates near zero for years to come, while Russia's rouble slumped on the risk of new sanctions against Moscow.
The dollar .DXY fell after the U.S. central bank projected a rapid jump in U.S. economic growth and inflation this year as the COVID-19 crisis winds down. nL1N2LE1D0
The Mexican peso MXN= and South Africa's rand jumped over 1%, while the Brazilian real BRBY, BRL= rose 0.6%. The MSCI's index of EM currencies .MIEM00000CUS rose 0.1%, reversing declines from earlier in the session.
"There was just a lot of anxiety which definitely pumped-up bond yields so far, but the Fed’s very dovish kind of response for a quite strong economic outlook is a big sigh of relief which we think could help maintain yields at current levels if not slow them down a little in the short term," said Anthony Denier, chief executive officer of trading platform Webull.
Riskier currencies such as those of emerging markets thrive on U.S. interest rates remaining low as they benefit from the interest rate differential that increases their appeal for carry trade.
The rouble RUB=, however, slipped 1% at 73.64 against the greenback.
"He will pay a price," President Joe Biden told ABC News in an interview that aired on Wednesday. A U.S. intelligence report on Tuesday bolstered longstanding allegations that Putin directed efforts to swing the election to Donald Trump, and sources said sanctions on Russian could come as soon as next week. nL1N2LF0WAnL1N2LE1ZI
"The comments from Biden were a lot more aggressive than what markets were anticipating," said Simon Harvey, FX analyst at Monex Europe, adding that the market now expects broad-based and more targeted economic sanctions towards domestic markets than previously imposed.
The latest threat comes after the United States and European Union imposed sanctions, albeit limited, over the alleged poisoning of Kremlin critic Alexei Navalny.
In Brazil, the country's central bank later in the day is expected to hike interest rates for the first time in six years as inflation surges. The government on Wednesday sharply raised its inflation outlook for this year to 4.4% from 3.2%. nL1N2LF15P
"Policy normalisation will weigh on consumer confidence and the economic recovery, and will not be an ultimate fix for the real," said Chris Shiells, managing analyst, emerging markets at Informa Global Markets.
"Markets have already priced in at least a 50-bps hike and swap rates are looking at the chance of a 100-bps rate hike. Thus, there is a chance the central bank will disappoint markets if it fails to deliver at least 50 bps."
The real is among the worst-performing EM currencies year-to-date, down 8%, thanks to worries about fiscal spending, political interference and rising inflation.
Key Latin American stock indexes and currencies at 1912 GMT;
Daily % change
MSCI Emerging Markets .MSCIEF
MSCI LatAm .MILA00000PUS
Brazil Bovespa .BVSP
Mexico IPC .MXX
Chile IPSA .SPIPSA
Argentina MerVal .MERV
Colombia COLCAP .COLCAP
Daily % change
Brazil real BRBY
Mexico peso MXN=D2
Chile peso CLP=CL
Colombia peso COP=
Peru sol PEN=PE
Argentina peso (interbank) ARS=RASL
Argentina peso (parallel) ARSB=
For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh
For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX
For TOP NEWS across emerging markets nTOPEMRG
For CENTRAL EUROPE market report, see CEE/
For TURKISH market report, see .IS
For RUSSIAN market report, see RU/RUB
(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru; Additiona reporting by Shashank Nayar in Bengaluru; Editing by Nick Zieminski and Lisa Shumaker)