EMERGING MARKETS-Currencies fall against dollar, Sri Lanka plans new debt restructuring

Most emerging market currencies weakened on Thursday as the dollar gained on the back of hawkish comments by major central bankers, while Sri Lanka's sovereign dollar bonds rose after the government made its latest debt restructuring pitch. The greenback strengthened to a seven-month high against the Japanese yen after U.S. Federal Reserve Chair Jerome Powell, speaking on a panel with ECB President Christine Lagarde, Bank of Japan (BOJ) Governor Kazuo Ueda and Bank of England Governor Andrew Bailey, pointed to expectations for two rate rises this year.

Most emerging market currencies weakened on Thursday as the dollar gained on the back of hawkish comments by major central bankers, while Sri Lanka's sovereign dollar bonds rose after the government made its latest debt restructuring pitch.

The greenback strengthened to a seven-month high against the Japanese yen after U.S. Federal Reserve Chair Jerome Powell, speaking on a panel with ECB President Christine Lagarde, Bank of Japan (BOJ) Governor Kazuo Ueda and Bank of England Governor Andrew Bailey, pointed to expectations for two rate rises this year. "Powell's comments were on the hawkish side and are consistent with another hike coming in July," Jefferies interest rate strategist Mohit Kumar said.

The Chinese yuan weakened despite the People's Bank of China (PBOC) setting a much stronger than expected official rate. Sri Lanka's sovereign dollar bonds rose by as much as 0.77 cents earlier in the session, Tradeweb data showed.

The crisis-hit island nation is asking foreign investors in its international sovereign bonds to take a 30% haircut and seeks similar concessions from holders of its other dollar-denominated bonds in the effort to restructure massive debt. The World Bank approved $700 million in budgetary and welfare support for Sri Lanka on Thursday, the biggest funding tranche since an International Monetary Fund (IMF) deal in March.

South Africa's rand dropped 0.2% ahead of producer price index data for May later in the day. Central bank data showed South Africa saw a small foreign direct investment inflow of 0.5 billion rand ($26.76 million) in the first quarter of 2023, down from a revised inflow of 64.0 billion in the previous quarter.

Turkey's lira kept near a record low at about 26 to the dollar, while the Russian rouble weakened to 87 against the dollar, hampered by domestic political instability after an aborted mutiny over the weekend. "Countries like China and Iran, which are aligned with Russia, and prefer a weak but coherent Russia to a strong or fragmented Russia, will be left in a weaker position relative to their rivals than before," said Hasnain Malik, emerging & frontier markets equity strategy at Tellimer.

Brazil's central bank inflation report will be watched later in the day. For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

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