World currencies strengthen against dollar, ahead of federal reserves meet

Emerging market stocks hit a six and a half month peak on Tuesday and developing world currencies firmed against a soft dollar on expectations the U.S. Federal Reserve will strike a dovish stance at its meeting this week. The two-day meeting starts later on Tuesday. Money markets are pricing in a 99 per cent probability of borrowing costs not being altered on Wednesday. They were left unchanged at the Fed's last rate-setting meeting in January.

Dovishness from the European Central Bank (ECB) and the Fed is spurring emerging market sentiment as developing world central banks have become less worried about accelerating inflation, Vladimir Miklashevsky, senior economist and trading desk strategist at Danske Bank, wrote in a note to clients. "Given the recent change in monetary path from the ECB and Fed and the intensifying hunt for higher yields, we became slightly more bullish on emerging market FX," he said.

MSCI's index of developing world stocks rose 0.2 per cent, gaining for a third straight day, while MSCI'S emerging market currencies index ticked up 0.1 per cent. Russian equities were pushed up 0.2 per cent, mainly on a strong showing by energy stocks on rising oil prices. The rouble firmed 0.2 per cent.

The Russian central bank is due to take a decision on borrowing costs on Friday, with markets pricing in a 87 per cent chance of rates remaining at 7.75 per cent, according to Refinitiv Eikon data. The rouble has been a stand-out emerging market performer with a 8.6 per cent rise this year, helped by oil prices jumping about 26 per cent since the start of 2019.

Turkey's lira was on an even keel, while stocks slipped away from a more than two week closing high notched on Monday as losses among financials and industrials sent the index 0.1 per cent lower. South Africa's rand was 0.3 per cent firmer as it largely recovered ground lost in the previous session. Local stocks rose 0.4 per cent, a gain which set them on track for their highest closing level in nearly half a year.

In emerging Europe, Budapest-traded shares hit a record high and were trading 0.7 per cent higher on strength among industrials. Poland's zloty was little changed against the euro. Data showed wages in the country's corporate sector rose by an annual 7.6 per cent in February, above analysts' expectations of 7.2 per cent.

(With inputs from agencies.)