A stronger U.S. dollar is proving to be an early test for emerging-market currencies on the eve of Joe Biden\u2019s inauguration.<\/p>\n
The greenback gained over the last two weeks, buoyed by the president-elect\u2019s proposal for a $1.9 trillion stimulus package. Most developing-nation currencies have slumped in that span, and history suggests further pain may be in store.<\/p>\n
MSCI Inc.\u2019s gauge of emerging-market currencies ended 2020 with its biggest quarterly advance in a decade as optimism over the distribution of Covid-19 vaccines bolstered risk appetite. Now, the backdrop of rising cases, renewed lockdowns and vaccine concerns threatens to reverse those flows.<\/p>\n
\u201cIf vaccines prove less effective than we expect and [the] global economy stumbles, the \u2018safe haven\u2019 dollar would likely appreciate,\u201d Goldman Sachs Group Inc. strategists including Zach Pandl wrote in a report.<\/p>\n
Still, the strategists \u201cexpect broad dollar weakness\u201d this year as exposures to risk assets and upside in commodity prices can outweigh the potential drag from higher U.S. rates.<\/p>\n
One currency of interest to investors is the Turkish lira, which has climbed since hitting a record low in November. On Thursday, the central bank is expected to keep the nation\u2019s one-week repo rate at 17%.<\/p>\n
\u201cThe lira has rallied and reserves are stabilizing, providing no reason to raise rates further,\u201d according to Bloomberg Economics. \u201cStill, inflation accelerated in December, limiting the scope for rate cuts.\u201d<\/p>\n
Policy makers in Malaysia, South Africa and Brazil will also decide on their borrowing costs this week.<\/p>\n
Meantime, Biden\u2019s return to the White House on Wednesday will carry particular significance for traders who follow relations between the world\u2019s two largest economies. On Friday, the Trump administration announced it would sanction six officials from China and Hong Kong in a parting shot to Beijing.<\/p>\n
Turkey\u2019s central bank will probably leave its benchmark rate unchanged, according to the median estimate of 21 economists surveyed by Bloomberg<\/p>\n
South Africa\u2019s central bank will probably leave its policy rate on hold at 3.5% on Thursday, according to 15 out of 16 economists in a Bloomberg survey<\/p>\n
On Tuesday, Russia\u2019s central bank may publish preliminary 4Q data on the current-account balance, while the federal statistics service releases its consumer confidence index for the same quarter<\/p>\n