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Global Daily: Developing-country currencies head for record monthly rally

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Financial Markets

 

Emerging-market currencies are heading for their strongest monthly gain on record as the Federal Reserve embraced a gradual approach to its rate-hiking cycle, fueling risk-on appetite and increasing investor bets in risker developing-country assets.  A gauge of 20 major emerging-market exchange rates against the dollar gained another 0.5 percent on Thursday, extending its monthly gain to a historic high of 6.1 percent.  Russian ruble is leading the rally as oil price headed for the best monthly increase in 11 months.

 

Poland sold $1.75 billion of 10-year dollar bonds on Wednesday, returning to the international debt market for the first time since its first-ever sovereign rating downgrade in January.  The new issue was priced to yield 150 basis points (bps) over comparable U.S. Treasuries, 25 bps higher than the average yield on the country’s dollar debt. Poland’s borrowing costs have increased since the October election as the risk premium investors demand to buy Polish dollar bonds instead of U.S. Treasuries rose to 125 bps in March from 89 bps at the end of October.

 

 

Advanced Markets

 

The initial U.S. jobless claims rose for the third week in a row by 11,000 to 276,000 claims in the week ended March 26th, over the previous week of 265,000. This number is still below the 300,000 for 56 continuous week threshold normally related with healthy labor market. However, the number of people continuing to receive jobless benefits shrank by 7,000 to 2.17 million in the week ended March 19th.

 

UK registered one of its biggest current account deficit which widened to 7 percent of GDP in 2015 Q4, up from 4.3 percent in 2015 Q3. This was largely driven by an increase in imports and a sharp contraction in exports and decline in returns on UK investments abroad.

 

Euro Area consumer prices remained in the deflationary territory for the second month in a row, falling to -0.1 percent (y/y) in March, a slight improvement over -0.2 percent in February.  However, the core inflation inched up to 1 percent in March (y/y) compared to 0.8 percent in February, surpassing the market forecast of 0.9 percent.

 

 

Emerging and Frontier Economies

 

East Asia and Pacific

 

Standard & Poor's Ratings Services has revised its outlook to negative from stable on China's government credit ratings, saying that the economic rebalancing is likely to proceed more slowly than previously expected.  Standard & Poor's currently rates China’s government at ‘AA-‘.

 

Myanmar has sworn in its first civilian-dominated government for more than 50 years on Wednesday.  The military-backed transitional administration handed over power to a successor led by Nobel Peace laureate Aung San Suu Kyi’s National League for Democracy.

 

Europe and Central Asia

 

The Czech National Bank left its two-week repo rate on hold at 0.05 percent, as expected.  The discount rate was maintained at 0.05 percent and the Lombard rate at 0.25 percent.  The bank also decided to continue using the exchange rate as an additional instrument for easing the monetary conditions and confirmed its commitment to intervene on the foreign exchange market if needed to weaken the koruna against the euro.

 

The central bank of Moldova lowered its benchmark base rate by 200 bps to 17 percent, following a 50 bps cut last month due to lower inflation.  Policymakers also cut the overnight lending and deposit rates by 200 bps each to 20 percent and 14 percent respectively.

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