The Polish zloty rebounded off three-month lows yesterday after the president said he would veto judiciary reforms, whilst emerging stocks rose to 27-month highs underpinned by a weak dollar and a benign growth outlook.
The zloty firmed 0.7% against the euro after Polish President Andrzej Duda said he would veto two of three bills to reform the judiciary system, which have triggered street protests and raised EU concerns about a politicisation of the courts.
“(The zloty) has reversed some of the losses seen late last week,” said William Jackson, senior emerging markets economist at Capital Economics.
“Attention now will focus on these controversial laws going back to parliament, how they are redrafted and whether in their final form they will continue to cause alarm for investors and for the European Union.”
The Polish currency had slumped to its lowest level since mid-April earlier in the day, having fallen over 1% on Friday.
The measures have attracted strong criticism from the European Union, which gave Poland a week to shelve the judicial reforms or risk sanctions. Broader emerging markets have shrugged off the tensions, with MSCI’s benchmark emerging equity index up 0.3% to its highest since April 2015.
Chinese mainland stocks rose 0.4% to near 18-month highs, Indian shares gained 0.5% to hit fresh record highs and South African stocks rose 0.8%.
The International Monetary Fund upgraded its growth forecast for China to 6.7% in 2017.
Emerging market assets have been supported by a run of robust data in recent weeks, whilst the US dollar has slipped to its lowest since June 2016 against a basket of currencies allowing emerging currencies to make gains.
One outlier was the Russian rouble, which slipped 1% against the dollar after the US Senate and House leaders agreed a bill allowing new sanctions.
Russian dollar-denominated stocks also fell 1%. The Turkish lira slipped a touch against the dollar as a diplomatic spat between Germany and Turkey rumbled on. Relations between the countries have deteriorated following the arrest of six human rights activists, including one German, two weeks ago.
Fitch maintained its junk rating on Turkey’s sovereign debt on Friday, citing political and regional risks as well as the impact of economic stimulus that could weaken the country’s fiscal performance.
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