Hawkish central banks keep currencies afloat

An index of emerging market stocks built on the day's gains as most Latam bourses also rose, while monetary policy was the defining theme among currencies, with the Czech crown surging 1% after a larger-than-expected interest rate hike.

MSCI's index of EM stocks picked up from over five-week lows to rise 0.2%, with a 1% jump in Brazil's Bovespa index - the most among Latam peers - adding to gains elsewhere.

The Czech crown looked to post its best session in nearly 11 months against the euro after a 75 basis points hike to 1.5%. The Mexican peso fell 0.2%, while Colombia's currency rallied 0.6% ahead of 25 basis point hikes expected from both central banks.

The Polish zloty shot up 1% against the euro for its sharpest rise since April after minutes of the central bank's last meeting suggested a rate rise might be imminent, while Russia is seen hiking next month for a sixth time this year to curb inflation.

Most EM central banks have been on a hiking cycle as a fragile recovery from the pandemic has fanned inflation, helping the currencies stay buoyed against a dollar now at one-year highs.

Slowing growth worries hammer Latam assets, Mexico's peso slumps 1%

"As long as EM central banks do not fall behind the curve, currency pressures should be relatively well contained, potentially creating some interesting opportunities in local currency debt...," Patrick Curran, senior economist at Tellimer, told the Reuters Global Markets Forum.

Brazil's real lost 0.3% after the central bank projected 2.1% economic growth for 2022 compared with a revised 4.7% for this year, citing its aggressive tightening cycle compressing growth.

The real is set for its worst month since March this year, and its biggest quarterly loss since March 2020 when the coronavirus pandemic virtually brought economic activity to a standstill.

Chile's peso has lost about 10% this quarter. The currency slumped 0.7% to a 15-month low on the day as copper prices eased. Data on Thursday showed Chile's copper output fell in August.

Currency of the world's second-biggest copper producer Peru is on course for its sharpest quarterly decline since 2013, down 6.6%.

Among stocks, Brazilian oil company Petrorio jumped 7.4% on a report that its has the highest bid for Petrobras' Albacora field, while sanitation company Sabesp rose 3.4% after its board's move towards privatization.

Mexico's biggest telecoms company America Movil extended gains after shareholders approved a plan to spin off its towers business in Latin America.