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EM-Turkish Lira Outperforms, EM Forex Index Slips

June 14 (Reuters) - Turkey’s lira jumped 1% on Monday ahead of a meeting between President Tayyip Erdogan and his U.S. counterpart, while an index of developing market currencies was on course for its worst session in over six weeks as the dollar strengthened.

MSCI’s index of EM currencies fell 0.2% ahead of a U.S. Federal Reserve meeting later in the week. Investors are watching out for any mention of monetary policy tightening that could hit market appetite for risk assets.

The dollar gained sharply on Friday and held at those levels on Monday.

The lira extended gains for a fourth straight session, rising 0.5%. Erdogan said over the weekend that Turkey had raised its forex swap line with China to $6 billion from $2.4 billion.

Later in the day, he will meet with U.S. President Joe Biden in Brussels where the two are expected to discuss differences, especially Turkey’s purchase of Russian S-400 defence systems which led to U.S. sanctions and ouster from NATO’s F-35 programme.

Credit Suisse analysts will be watching to see if Erdogan will propose the instalment of the Russian S-400 missiles at a U.S. air base in Turkey.

“It remains to be seen whether...(this) will be adequate to bridge the gap between the two countries on this issue.”

Investors will also be looking to Turkey’s central bank policy meeting on Thursday, where it is expected to hold rates steady at 19%.

Russia’s rouble continued its retreat from 11-month highs, down 0.3%. Ahead of a meeting with Russian President Vladimir Putin on June 16, Biden said that Russia might be weaker than it seemed under “autocrat” Putin.

Russia’s relationship with the West has deteriorated this year with sanctions imposed due to its crackdown on Kremlin critics and interference in 2020 U.S. elections, and amid tensions in neighbouring Belarus. But the rouble has stayed from steep falls as the sanctions have not been as severe as expected. The currency is up almost 3% this year.

Resource-rich South Africa’s rand continued its downtrend after hitting year-highs earlier this month. Up almost 7% for the year, the rand is the best performing EM currency so far thanks to rising commodity prices.

But “we believe that most of the positive news in South Africa is in the price and the rand’s risk premium is now one of the lowest across EMFX,” Morgan Stanley analysts said in a note.

Among stocks, MSCI’s index of EM shares nudged lower. China markets were closed for a holiday and some Asian shares slipped. Western European shares climbing to fresh highs, however, and U.S. futures marginally in the black, bettered sentiment for main indexes elsewhere.

(Reporting by Susan Mathew in Bengaluru; Editing by Jacqueline Wong)

Source: Reuters

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