EMFX Recovers as Fed Tightening Fears Ebb

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May 14 Reuters Most emerging market currencies gained on Friday, helped by a calmer dollar and easing Treasury yields as comments from Federal Reserve officials soothed concerns over immediate policy tightening, while stocks were set for their worst week since February.

MSCIs index of emerging market currencies gained 0.2, but was set to snap a fiveweek winning streak, while stocks were set to drop nearly 3.5 this week and more than 10 from their February peak, hitting correction territory.

Most emerging market assets were set to drop for the week after data on Wednesday showed U.S. inflation in April gained the most in nearly 12 years, intensifying concerns of tighter monetary policy.

However, those concerns eased after Federal Reserve Governor Christopher Waller said on Thursday the Fed would not raise rates until it sees inflation above target for a long time, or excessively high inflation.

The dollar and benchmark Treasury yields trended lower after Wallers comments, but were set to gain for the week.

Still, inflation fears continue to grip emerging markets, with economists forecasting further spikes this year as commodity, food and input prices rise due to the lingering effects of the COVID19 pandemic.

A range of factors is conspiring to push up global inflation, including base effects, rising commodity prices food, metals and oil, supplyside bottlenecks, and pentup demand in some sectors, said Luiz Eduardo Peixoto, an economist at BNP Paribas.

In EM, we…

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