Brazil's real, Turkish lira rise after rate hikes; other EM FX fall

Brazil's real and Turkey's lira outperformed broader emerging market peers on Thursday, following interest rate hikes by their respective central banks, while rising geopolitical tensions weighed on Russia's rouble.

The lira jumped up to 2.5% against the greenback after a hefty 200-basis-point (bps) hike, while Brazil's real was up 1%, trimming early gains of almost 2%, after the central bank delivered a larger-than-expected 75-bps raise after the market closed overnight.

Delivering its first interest rate hike in nearly six years, Brazil's rate-setting committee, Copom, raised the key rate to 2.75%, and flagged a similar move in May to fight inflation despite rising economic uncertainty.

"While we think that (the real) should gain a short-term bid on this more hawkish stance, there remains substantial risk of an increase in Brazilian assets' fiscal risk premium, past an expected short-term relief rally," said Sacha Tihanyi, head of EM strategy at TD Securities.

"Thus we see 75bps (hike) at the next meeting, followed by three 50bp hikes before the BCB tapers the pace of tightening to 25bps per meeting."

The real is among the worst performing emerging market currencies, with worries about fiscal spending, political interference and rising inflation pushing it around 7% lower for the year.

Emerging market currencies elsewhere fell as spiking US Treasury yields lifted a dollar that had been dented by the US Federal Reserve maintaining its dovish stance.

Russia's rouble gave up session gains to trade 0.4% lower after Russian President Vladimir Putin responded with a quip to US counterpart Joe Biden's warning of consequences for alleged Russian involvement in 2020 US elections, saying he wished the US president good health.

Washington is expected to impose new sanctions on Moscow as soon as next week. The rouble had fallen 1% on Wednesday.

Declining oil price also weighed on the crude-exporting nation's currency.

Among other emerging market crude exporters, Colombia saw its currency decline 0.2%, while Mexico's peso retreated from one-month highs, hurt further by data showing its economy contracted by 4.0% in February.

Underperforming broader emerging market peers, Brazilian stocks slid 0.7% as state-owned oil producer Petroleo Brasileiro SA and consumer stocks like Magazine Luiza SA and Grupo Natura weighed.

Brazil's largest airline Gol Linhas Aereas Inteligentes fell 3.7% after the company said it was revising downward its outlook for early 2021.