Dollar Mixed as Concerns over Emerging Markets Ease

January 28, 2014

Tokyo (Jan 28)  The dollar steadied against the yen and the euro in Asia on Tuesday, while emerging currencies like the Turkish lira and the South African rand gained against the U.S. dollar, as concerns over their economies eased.

The announcement of a special policy meeting by Turkey's central bank helped improve sentiment, and calmer Asian stock markets indicated that risk aversion was moderating as investors started to overcome their recent jitters over emerging economies.

Still, some traders said the gains in the lira and rand might be overstated given the thin market conditions as many players chose to stay on the sidelines amid continued uncertainty.

Views are divided over how long the current jitters will last after weak China data and a plunge in Argentina's peso triggered a selloff in the global stock market in recent sessions.

Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo said the company expects Turkey's central bank to tighten its monetary policy to stem a slide in the currency that could lead to a rise in inflationary pressure.

Mr. Tanase said, however, "a tighter policy alone may not be enough to settle down emerging markets" as uncertainty over China's shadow banking problem and the U.S. Federal Reserve tapering of its stimulus could keep markets nervous.

Some traders are less pessimistic, though.

"I don't think the regional jitters will be translated into a global crisis since there isn't a sign that the world economy is making a turn for the worse," said Dai Sato, senior vice president of forex division at Mizuho Bank.

While Mr. Sato doesn't see market nerves persisting for long, he notes that sentiment could be hurt if markets get further evidence that the strength of the U.S. recovery isn't as impressive as expected.

Traders and analysts are now focusing on the Fed's two-day policy-setting meeting starting later in the global day as a cue for a fresh market direction.

Julian Jessop, chief global economist at Capital Economics said the volatility in some emerging markets is unlikely to deter the Fed from announcing a further tapering of its bond purchases on Wednesday, renewing the upward pressure on global yields.

Mr. Jessop noted that the global selloff in equity markets had strengthened the yen. "But this all seems overdone too, especially with the Bank of Japan set to keep monetary policy exceptionally loose for the foreseeable future," he said.

At 0550 GMT, the dollar was at Y102.65 from Y102.55 in late Monday trading in New York. The euro was at $1.3677 against $1.3673. The WSJ Dollar Index, a measure of the dollar against a basket of currencies, was down 0.09% to 73.99.

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