LONDON: A slightly firmer dollar kept emerging markets in check on Tuesday, with China´s yuan retreating for the third day in a row, though emerging stocks managed to scale fresh three-year peaks.
With Hurricane Irma now downgraded to a tropical storm and no further warlike rhetoric or action from nuclear-armed North Korea, the dollar firmed slightly, even though markets see slim chances of another US interest rate rise this year.
That is keeping alive appetite for emerging assets, pushing MSCI´s equity index 0.3 percent higher and emerging dollar bonds´ premium over US Treasuries to the lowest in nearly three years.
Currencies on the other hand were mostly weaker versus the dollar, led by the yuan which slipped below the psychologically key 6.5-per-dollar mark in the wake of a relaxation of controls on capital outflows.
Official guidance on the currency weakened for the first time in 12 days, raising questions over whether the renminbi would continue the trend that has seen it firm more than 6 percent this year and almost 3 percent since early-August. As a result of the gyrations, implied volatility on the yuan – a measure of expected swings in the currency – has surged to the highest since February.