By Josie Cox
Emerging-market currencies swept higher Thursday, triggered by
comments from U.S. Federal Reserve Chairwoman Janet Yellen that
served as a fresh reminder that the U.S. central bank is in no
hurry to raise interest rates.
In testimony before Congress Wednesday, Ms Yellen said the
economy was on track for "solid growth," but she pointed to housing
as a source of potentially more lasting problems. The dollar
continued to weaken, while emerging market currencies enjoyed
strong support from an enhanced appetite for riskier bets,
particularly alongside cooling geopolitical tensions surrounding
Russia.
The Russian ruble remained robust against the dollar but came
off earlier highs to trade broadly unchanged on the day at 34.97,
after reports that Ukrainian separatists will go ahead with a
referendum vote for independence this weekend. On Wednesday,
President Vladimir Putin appealed to pro-Russian separatists in
southeastern Ukraine to delay a referendum on independence.
Currencies that have been particularly sensitive to the U.S.
interest-rate outlook over the past year picked up markedly. By
midmorning, the dollar had hit a fresh 2014 low against the South
African rand of 10.3545, and also fell 0.3% to the Turkish lira,
hitting 2.0750. That marks the lira's highest point since Dec. 25
last year. Turkey's two-year government bond yields fell by 0.29
percentage points to 8.95%, and its main stock index BIST-100 rose
more than 1%. Bond yields fall as prices raise.
"Putin and Yellen provided more reasons for emerging-market
buying yesterday and Chinese April trade data, this morning puts
the icing on the cake," said Isik Okte, a strategist at TEB
Investment, a unit of BNP Paribas, in a nod to the first rise in
Chinese exports in two months. "Lira-denominated assets have been
major beneficiaries in this environment."
The euro traded at $1.3926 against the dollar in the run-up to
the ECB announcement. Sterling was at $1.6966, with a Bank of
England rate announcement also pending, while the yen traded at
Yen101.80.
The ECB is broadly expected to leave interest rates unchanged,
despite persistently drab inflation, but President Mario Draghi's
subsequent news conference will be monitored closely for hints of
what the June meeting might bring, and in particular whether the
central bank may embark on a program of asset purchases to
stimulate the economy, a policy known as quantitative easing.
"We expect the ECB governing council to keep interest rates
unchanged at its May monthly policy meeting on Thursday, but it is
again a close call, " Barclays strategists wrote in a note.
The recent strength of the euro has fanned new fears surrounding
inflation, but the prevailing view is for action to come in June at
the earliest.
"June seems more likely, but the ECB is not finding it easy to
agree on a QE program and may need longer still. It's been a case
of lots of words but little action so far," said Ben Bennett,
credit strategist at Legal & General Investment Management.
The Bank of England is also expected to keep rates on hold.
Moscow's MICEX stock index closed 3.4% higher on Wednesday and
was trading around 0.4% higher on Thursday. The Stoxx Europe 600,
meanwhile, was up 0.5% in early trade, with the U.K.'s FTSE 100 up
0.5%, led by Barclays. Investors cheered the U.K. lender's decision
to cut 7,000 jobs at its investment bank over the next two
years--part of a wider plan to reduce its bloated cost base.
In commodities markets, gold rose 0.2% to $1,291.50 an ounce
while Brent crude oil lost 0.5% to trade at $107.59 a barrel.
Nickel, meanwhile, soared to its highest level in over two years
following reports of a production halt at Vale SA's Goro nickel
processing plant in New Caledonia.
The LME's three-month nickel contract rose 6.1% to
$19,786/ton--its highest since March 2012. News of the Vale
stoppage added to persistent concerns over supply amid an ore
export ban in top producer Indonesia, said Rob Montefusco, a senior
commodities broker at Sucden Financial. "It's a tough call but
$20,000/ton looks quite achievable," he says.
Yeliz Candemir contributed to this article.
Write to Josie Cox at josie.cox@wsj.com