SAO PAULO/LONDON, Feb 7 (Reuters) - Emerging market currencies pared gains on Friday as traders reconsidered the impact of January’s U.S. payroll numbers on the Federal Reserve’s plans to reduce its monetary stimulus program.
U.S. employers hired far fewer workers than expected in January and job gains for the prior month were barely revised up, data showed on Friday.
Traders initially saw the data as evidence that growth in the world’s largest economy is losing steam, driving emerging market currencies higher on a bet that the Fed would be less likely to further trim its bond-buying program.
But a closer look at the figures led many to shift course.
“After we looked deeper into the numbers we found the positive details overshadowed the negative headline,” said Michael Woolfolk, a senior currency strategist at BNY Mellon in New York, citing data showing strong employment gains in the household survey from which the jobless rate is derived.
“If the US economy has indeed slowed this winter, it is first of all modest,” he said.
Brazil’s real fell in afternoon trading after having reached its strongest level in over two weeks earlier in the session. The Mexican and Chilean pesos were also unable to hold onto gains.
South Africa’s rand fluctuated between gains and losses, while the Turkish lira remained slightly higher against the dollar.
In Russia, the rouble capped a three-day rally against the dollar. On Friday Russia’s central bank again shifted its target exchange-rate corridor following interventions aimed at curbing the pace of the currency’s decline.
Ukraine’s hryvnia firmed off five-year lows after the central bank slapped restrictions on some types of foreign currency purchases, saying the move was aimed at defending the banking system’s stability.
Meanwhile, emerging equities pared early gains but remained at their highest level in over a week. Brazil’s Bovespa index traded nearly flat as shares of widely-traded iron ore producer Vale SA sank. Still, the index was on track to close the session with its first weekly gain in six weeks.
Mexico’s IPC stock index held onto gains after inflation data beat expectations, while Chile’s IPSA index rallied for a fourth day.
Ilan Solot, an analyst at Brown Brothers Harriman, said the pace of selloff in the currencies of ‘fragile’ economies with big current account gaps was slowing and possibly could hit markets such as Mexico and Poland where investors had big positions.
“We’re not going to see Turkey and South Africa lose as much,” he said. “Fragile countries are fighting back with interest rate hikes, intervention and in some cases changes to their monetary policy system.”
However emerging funds continued to see increasing redemptions in the week to Feb. 5, banks said citing data from EPFR Global. Equity fund outflows so far in 2014 now surpass the total seen in 2013, the data shows.
Data from Thomson Reuters company Lipper showed that outflows form emerging stock funds amounted to $2.7 billion, the biggest weekly loss since Feb. 2011
For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see ) (Additional reporting by Bruno Federowski and Natsuko Waki Editing by W Simon and Meredith Mazzilli)