Emerging market currencies climb to two-week highs

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Emerging market currencies climb to two-week highs

Lira eyes are the best week of their life despite the thin market.

Dec 23 Reuters - Emerging market currencies climbed to two week highs on Thursday, and gained for a third session in a row due to expectations that the global economy can cope with the fast-spreading Omicron coronaviruses variant.

The MSCI's EM currencies index was up 0.3%, with the Turkish lira extending the week's stunning rally from record lows after the government launched a series of measures to prop up the battered currency.

The lira was up another 5% to 11.40 per dollar and took its overall weekly gains to more than 40% and put it on course for the best weekly showing ever, although in less liquid holiday markets.

Concerns about Ankara's unorthodox economic policies, including the insistence of rate cuts at a time when inflation is surging, has hammered the currency, pushing it to an all-time low of 18.4 on Monday.

The currency got a boost last week after President Tayyip Erdogan said the government and central bank would guarantee some local currency deposits against FX depreciation losses, but it still raised concerns among investors.

You have now got the fiduciary that is linked to the FX appreciation, and that is bad because we don't know where the money will come from. It's possible that taxes will come and nobody is really happy about it, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

This level of complication in the policy is going to turn back and hit the Turkish lira. The data on Turkey's foreign exchange reserves for the week ended December 17 is due later in the day.

Risk appetite improved as investors began to believe in the global economic recovery after data showed a better than expected uptick in U.S. consumer confidence and concerns over the severity of the Omicron coronaviruses variant.

An index of developing world stock markets climbed by 0.9%, a trend that was similar to the gains in global equity.

Russia's rouble was at its highest level against the dollar for more than a month, as President Vladimir Putin spoke at a news conference about a standoff between Russia and the West over Ukraine's NATO aspirations.

Russia has moved tens of thousands of troops close to its border with Ukraine, but has rejected Ukrainian and U.S. accusations that it may invade as early as next month.

The Czech crown was near its strongest level since February 2020, as the central bank surprised with a 100 basis point interest-rate hike, saying it was ready to do more to rein in inflation.

Several central banks in the developing world have raised rates aggressively this year to combat the surge in inflation, but the prospect of tighter U.S. rates, slowing Chinese economy and a strong dollar have kept EM assets under pressure this year.