June 14 (Reuters) – Emerging market stocks and currencies were subdued on Wednesday as investors awaited the outcome of the U.S. Federal Reserve’s monetary policy meeting for clues on the direction of interest rates in the world’s largest economy.
MSCI’s index for emerging market equities .MSCIEF was down 0.2% by 0823 am GMT, slipping from a fresh four-month high hit earlier in the session, while currencies .MIEM00000CUS were 0.1% lower.
The Federal Reserve is expected to leave interest rates unchanged at the end of its meeting later in the day given a slowdown in inflation, pausing an aggressive rate-hiking cycle which began early last year.
Investors will also focus on comments from Fed Chair Jerome Powell at a conference held shortly after the policy decision.
Hopes of a pause in the Fed’s tightening as well as a rate cut from China to boost its faltering economic recovery have aided sentiment towards emerging market equities this week.
“Inflationary pressures have faded sufficiently for the Fed to skip a rate hike, but not to end the tightening cycle. The overall message could be far more hawkish than the markets assume,” said Piotr Matys, senior FX analyst at In Touch Capital Markets.
“The key question is whether the markets actually listen to what Chair Powell has to say about inflation being sticky and that more rate hikes are likely.”
China’s blue-chip stocks index .CSI300 was muted, while the yuan CNY=CFXS steadied just above a six-month low against the dollar as investors assessed odds of further policy stimulus from the country.
The Chinese central bank is widely expected to cut the borrowing cost of medium-term policy loans for the first time in 10 months on Thursday after it lowered two key short-term policy rates, a Reuters poll showed.
Turkey’s lira TRYTOM=D3 weakened from the previous day’s close and was last at 23.68 against the dollar, but had still not touched Monday’s record low of 23.77 versus the dollar.
The Russian rouble RUBUTSTN=MCX slid to a more than 14-month low past the 85 mark against the dollar due to limited foreign currency supply in a reduced-liquidity market.
South Africa’s rand ZAR= gained 0.6% against the dollar ahead of retail sales data for April due later in the day.
(Reporting by Amruta Khandekar; Editing by Jan Harvey)
