Currencies: Dollar index clings to monthly gain as traders focus on emerging-markets turmoil

Currencies: Dollar index clings to monthly gain as traders focus on emerging-markets turmoil

The Turkish lira took back some lost ground and the Argentine peso stabilized a day after a rout that is kept emerging-markets concerns front and center for investors. Meanwhile, a closely watched dollar index clung to a modest monthly gain on the last day of August.

“There remains a feeling that all is not well in these markets and the question now really becomes whether currency crises in Ankara and Buenos Aires can be contained or whether there’s a spillover effect and contagion risks rise once more,” said David Cheetham, chief market analyst at XTB, in a note.

Read: How Argentina’s peso plunge keeps emerging markets in the spotlight

The Indian rupee USDINR, -0.0844%  slumped to an all-time low in early Asian trade Friday, while the Indonesian rupiah USDIDR, -0.44%  hit a three-year nadir before rebounding.

The U.S. currency, meanwhile, was little changed versus major rivals, leaving a closely watched index on track for a modest monthly gain.

The dollar retreated 1.2% versus the Argentine peso USDARS, -3.6954%  , extending a decline after the International Monetary Fund, in a statement, said Managing Director Christine Lagarde would meet with Argentine officials early next week and that it “fully supports” the country. The peso remains down more than 19% versus the dollar this week and is off more than 51% for the year to date.

The peso declined sharply on Wednesday after President Mauricio Macri called on the IMF to speed the payout of a $50 billion bailout package, prompting investors to flee. Losses accelerated Thursday, causing Argentina’s central bank to deliver an emergency rate increase, lifting its benchmark by 15 percentage points to 60%.

See: Argentina hikes interest rate to 60% in failed effort to stem peso plunge

Against the Turkish currency, the dollar traded at 6.197 lira USDTRY, -0.6445% down from 6.653 lira late Thursday, when the lira fell sharply following the resignation of the central bank’s deputy governor.

The bounce was credited to a move by the government on Friday to raise taxes on foreign-currency deposits with maturities of less than one year while cutting the tax on longer-term lira deposits.

“The move is clearly aimed at making the U.S. dollar relatively less attractive in the short term while encouraging longer term holdings of the lira, but while there’s been initial gains this is unlikely to be enough to stem the overall declines,” Cheetham said.

Concerns about Turkey’s economy, President Recep Tayyip Erdogan’s criticism of the country’s central bank and a clash between Turkey and the U.S. over Ankara’s detention of U.S. pastor Andrew Brunson have contributed to pressure on the lira, which is down around 42% versus the dollar so far in 2018, according to FactSet.

The ICE U.S. Dollar Index DXY, +0.42% which tracks the U.S. currency against six major rivals, traded at 94.860, up slightly from 94.739 late Thursday, and on track for a 0.4% monthly rise. A stronger dollar and the Federal Reserve’s slow but steady approach to tightening monetary policy have been blamed for exacerbating pressure on some emerging-market currencies.

The euro EURUSD, -0.5913%  changed hands at $1.1637 versus $1.1669 late Thursday, while the dollar slipped against the Japanese yen to ¥110.87 USDJPY, -0.03%  from ¥111.94.

Traders are also keeping an eye on talks between U.S. and Canada officials as they continued talks over a revised North American Free Trade Agreement ahead of a White House-imposed deadline.

The U.S. dollar was up 0.4% versus its Canadian counterpart USDCAD, +0.7163%  at C$1.3043.

Earlier, the euro was little budged by a cooling of inflation in the eurozone and a steady unemployment rate. Eurostat reported a preliminary 2% year-over-year rise in inflation across the 19-nation region in August versus 2.1% in July. The unemployment rate in July was unchanged at 8.2%.

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