Emerging market currencies jump as US reserves set equities straight

Emerging market currencies and stocks rose on Thursday after the U.S. Federal Reserve's dovish outlook from the previous day provided a shot in the arm to risk sentiment and set equities for their best monthly showing in nearly three years. The Fed matched investors' expectations in leaving borrowing costs unchanged but its signalling of an extended pause on rate hikes softened the dollar. That set the stage for broad strength among emerging markets currencies and bonds, ahead of the end of U.S.-China trade talks.

"The rally does lift all boats, first it will be the safer credits and in a couple of days it will move into the high yields," said Pictet EM portfolio manager Guido Chamorro, referring to improved appetite for high-yielding debt on the back of the Fed's dovish outlook.

Chamorro said he believed there would be optimism across the board in emerging markets, given the rally in U.S. treasuries after the Fed meeting. The MSCI emerging market currencies index was up 0.4 percent, trading at its highest level in more than seven months.

MSCI's index of stocks gained 0.9 percent, helped by strong gains among shares in index-heavyweight China. The benchmark was set to match the 8.4 percent it gained last January, which was its best monthly performance for January since 2012. China's yuan clocked its seventh straight session of gains, as it notched a fresh six and a half-month peak against the dollar.

Turkey's lira, popular among traders for its high yield, was little changed after Wednesday's 1.6 percent gain on the back of the Fed's decision. Turkish stocks were trading up 1.2 percent, supported by strong gains among financials.

Russia's rouble was 0.1 percent firmer to trade at more than three-month highs, building on a 1 percent jump overnight. Local stocks hit an all-time high and were trading half a percent higher, aided by gains across most sectors. South Africa's rand preserved most of a 2 percent jump clocked overnight after the Fed's decision while local stocks rose 0.2 percent. Retailer Shoprite Holdings Ltd was among the top gainers with a 3.8 percent rise, which made back a minor chunk of Wednesday's 14.2 percent tumble.