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LONDON, Feb 7 (Reuters) - A strong dollar and central bank interest rate cuts dragged down emerging-market currencies on Friday, putting them on course for their worst day since the end of August.
The MSCI Emerging Markets Currency Index slumped 0.5% on Friday, its worst day since Aug. 26.
Strong data and fragile risk sentiment have helped propel the dollar, with the focus shifting to the U.S. non-farm payrolls data due on Friday, which is expected to show the U.S. labour market is in robust health.
Data indicate “the U.S. economy is still in relatively good shape and the best performing economy in the G10 and the U.S. dollar is benefiting from demand for U.S. assets,” said Piotr Matys, senior emerging-markets FX strategist at Rabobank. “Meanwhile, several emerging-market countries are struggling with structural issues.”
The worst power cuts in a decade and choppy economic growth have hurt South Africa’s rand, which fell about 0.4% on Friday after data showed business confidence in the country fell in January.
Several emerging market currencies have also felt pressure after dovish turns from their central banks.
The Russian rouble shed 0.8% against the dollar after the country’s central bank lowered its key interest rate to 6.00% on Friday and said a further rate cut was possible at a future meeting.
Brazi’s real faltered for a second day running, falling 4.30 per dollar on Friday to a record low, even though the central bank signalled this week that its latest interest rate cut may be its last, and market-based interest rates rose.
Earlier in the week, Thailand’s central bank unexpectedly cut its benchmark rate for a third time in six months. The Thai baht slipped 0.3% on Friday.
Some investors have also become more cautious about emerging-market currencies as China’s coronavirus outbreak has spread. The death toll in mainland China rose to 636 on Friday, with the number of infections at 31,161. (Reporting by Tom Arnold; editing by Karin Strohecker, Larry King)