Dollar surge sends emerging currencies reeling on Monday

LONDON, Oct 2, (RTRS): Emerging market currencies slipped on Monday, extending losses from last week as a strong dollar and rising US Treasury yields outweighed upbeat factory data from China.

Emerging markets are one of the top-performing asset classes of 2017, with doubledigit gains in some sectors, but they have fallen back in recent weeks as the dollar has risen on expectations of a US rate rise by the end of the year and the possible appointment of a more hawkish US Federal Reserve chief.

South Africa’s rand , Russia’s rouble and Turkey’s lira all fell around 0.5 percent against the dollar as the dollar index rose further after enjoying its best week of 2017 last week, and yields on 10-year US Treasuries hit their highest since July.

Emerging currencies hit five-week lows last week on JPMorgan’s ELMI Plus index, losing more than 1 percent.

“You’re seeing some repricing on the US side on a combination of the possibility of tax reform in the US being approved and maybe a more hawkish Fed governor,” said Jakob Christensen, an emerging markets analyst at Danske Bank.

“That is playing into a stronger dollar, and goes hand in hand with higher US rates, which is typically tricky for emerging markets,” he said.

Investors were cheered by data showing manufacturing activity in China grew at the fastest pace since 2012 in September since that data paints a rosy picture for demand for emerging market exports.