EMERGING MARKETS-FX returns to 18-month lows as dollar gallops higher

By Anisha Sircar

May 12 (Reuters) – Emerging market currencies slipped on Thursday as the greenback hit its highest level in two decades after hotter U.S. inflation data, while regional shares tumbled to fresh 22-month lows on pressure from stock markets in India and China.

MSCI’s index of emerging market (EM) currencies .MIEM00000CUS resumed a descent that began in early-April, falling 0.6% to return to its weakest level since November 2020 after a breather in its last two sessions.

Inflation pressures in parts of EM are rising, even though U.S. inflation might have peaked, said Natalia Gurushina, EM Fixed Income economist at VanEck.

Data on Wednesday showed U.S. consumer price growth is likely to stay hot for a while. Higher-than-expected inflation lifted the dollar =USD and dragged stocks as it suggests a more robust Federal Reserve response this year. nL2N2X315F

“Some EM central banks will have to keep on hiking – in a sense ‘matching’ the Fed’s hikes – even though EM inflation is driven by exogenous factors, but the problem is that global supply shocks are feeding into core inflation, and this passthrough might be higher than in normal pre-COVID years,” Gurushina added.

Stocks .MSCIEF plunged 2.3% to a 22-month low, dropping eight out of its nine previous sessions.

Indian shares .NSEI, .BSESN dropped nearly 2% and the rupee INR=IN hit an all-time low for a second time this week ahead of domestic retail inflation numbers, with a Reuters poll expecting it to surge to an 18-month high. nL3N2X40XW nL3N2WY21A

China stocks .SSEC, .CSI300 pared gains to close upto 0.4% lower, while the yuan CNY= slipped 0.9% to a 20-month low.

The South African rand ZAR= fell 0.8%, ahead of mining data and after new COVID-19 cases crossed 10,000 for first time since January, stoking fears of a fifth wave. nJ8N2WE008

In Central Europe, the Czech crown EURCZK= bounced 0.2% a day after plumbing two-month lows after Czech Republic President Milos Zeman appointed Ales Michl, a central bank board member who has opposed policy tightening, as the bank’s new governor, signalling a likely end to rate hikes. CEE/

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets nTOPEMRG

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

(Reporting by Anisha Sircar and Lisa Pauline Mattackal in Bengaluru; editing by Uttaresh.V)

((Anisha.Sircar@thomsonreuters.com; Twitter: https://twitter.com/AnishaSircar;))