Turkish lira leads EMEA FX gains as July factory data improves

Turkey's lira led gains among currencies in Europe, the Middle East and Africa (EMEA) on Tuesday on positive manufacturing and inflation readings, while improving US data also helped sentiment.

The lira rose as much as 0.7pc to the dollar after data showed July manufacturing activity grew at its fastest rate in nine years.

Moderating consumer price inflation in the country also pointed to more economic stability, although analysts were sceptical that inflation could remain fettered.

"Any disinflation effect could be short-lived because the economies are being massively boosted by fiscal and monetary stimulus," Tatha Ghose, FX & EM analyst at Commerzbank wrote in a note.

"Hence, any downside surprise in today's data should still be taken with a grain of salt; and needless to say, upside surprise would count as doubly negative."

Turkish stocks led gains in EMEA, adding more than 1pc as they resumed trade after a long weekend.

Russia's rouble fell about 1pc to the dollar, while stocks were weighed down by losses in major energy firms.

Oil prices retreated as fears of the coronavirus' rapid spread undercut bets on improving fuel demand.

However, positive US manufacturing data helped lift broader sentiment, while markets also looked to fresh stimulus measures in the world's largest economy.

Central European currencies such as the Hungarian forint and the Polish zloty rose to the euro.

Polish manufacturing recovered in July after a coronavirus lockdown was eased, a survey showed on Monday, but Hungary posted a more modest improvement and the Czech Republic did not return to growth, suggesting the region still faces challenges.

Stocks in the region traded slightly higher for the day.

Emerging market risk assets had marked strong gains in July, amid improving economic data and hopes for a coronavirus vaccine. But they are yet to reach pre-pandemic levels.

For instance, the MSCI's index of developing world stocks, which rose about 1pc for the day, was about 5pc off a peak hit in January.