|11 July, 2019

EMERGING MARKETS-Fed rate cut hints lift currencies to 3-month highs

Egypt rate decision awaited

July 11 (Reuters) - Emerging market currencies hit three-months highs and stocks rose on Thursday after strong signals the U.S. Federal Reserve may lowering borrowing costs soon. 

The MSCI index of developing world currencies rose about 0.4%, touching its highest level since March 21, with currencies such as South African rand and the Thai baht lifted the most.

The dollar fell to a five-day low after Fed chief Jerome Powell pledged to 'act as appropriate' to combat a slowing economy, leaving the door open for an interest rate cut for the first time in a decade. 

Traders have priced in a 25-basis point rate cut at the July meeting, but are yet to cement their expectations of a 50-basis point cut as they await U.S. inflation numbers.

"If they see the Fed is scaling back expectations or if they do just 25 basis points there could be some profit-taking," said Jon Harrison, emerging markets macro strategist at TS Lombard in London.

Emerging markets had a strong run this year as mounting evidence trade disputes were taking their toll on global growth led to expectations that major central banks would turn dovish, helping inflows into high-yielding, developing world assets.

South Africa's rand ZAR= hit a near three-month high, aided by the appointment of Lesetja Kganyago for another five-year term as central bank governor. 

Russia's rouble RUB= added 0.2%, although the Turkish lira TRY= dropped 0.2% after the country's current account showed a less-than-expected surplus of $151 million in May. Economists polled by Reuters had anticipated a surplus of $300 million. 

The Turkish currency came under pressure earlier this week after the surprise sacking of its central bank chief and investors expecting a deeper cut in interest rates at the policy meeting on July 25. 

The Egyptian central bank is set to release its monetary policy decision later, with expectations of a rate cut on the rise after data showed core inflation numbers fell to their lowest in three years. The pound has gained about 8% so far this year.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Alexander Smith) ((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 6749 6328; Reuters Messaging: sruthi.shankar.reuters.com@reuters.net))

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