EM currencies eye sharpest one-day drop in almost 3 years

The emerging market currencies index was on track for its biggest daily percentage drop in nearly three years on Friday, with most Latin American currencies at session lows after solid U.S. job growth data boosted the dollar.

MSCI's emerging market currencies index (.MIEM00000CUS) was down 1.1% at 1938 GMT, and was headed for its worst daily performance since March 2020.

The U.S. Labor Department's highly anticipated monthly report showed nonfarm payrolls surged by 517,000 jobs in January. Economists in a Reuters poll had forecast a gain of 185,000.

The data, which came on the heels of what were seen as largely dovish messages from the Federal Reserve and some other central banks earlier this week, spurred concerns about interest rates staying elevated for longer than expected, boosting the dollar DXY.

"It's definitely questioned the need for the Fed to ease policy later in the year, so that understandably has weighed on emerging market currencies," said Chris Turner, global head of markets at ING.

"I think a modest correction in emerging market currencies is understandable. I don't think we need to see a really sharp sell-off (going forward), not unless U.S. price pressures pick up."

The Latin American currencies index (.MILA00000CUS) was down 2.4% on Friday, a day after touching multi-year highs.

The Brazilian real was down 1.8% against the dollar after Brazilian President Luiz Inacio Lula da Silva issued his latest threat to the autonomy of the country's central bank on Thursday, a day after the central bank floated the possibility of keeping interest rates at a six-year high for longer than expected.

Lula's criticism of the central bank also weighed on stocks in Brazil IBOV, which fell 1.1%, dragging the Latam stocks index (.MILA00000PUS) down 3.1%.

Industrial production in Latam's largest economy fell 0.7% in 2022, government statistics agency IBGE said on Friday.

The currencies of Mexico USDMXN and Colombia USDCOP, both oil exporters, dropped 1.6% and 2.3%, respectively.

Chile's peso USDCLP fell 2% as data showed total copper production in the country, the world's largest producer of the metal, slumped 0.5% to 495,800 tonnes in December. The Peruvian sol USDPEN was down 0.7%.

Meanwhile, broader EM stocks EEFS fell 1.1% and were on track for their first weekly decline in 2023, bogged down by declines in Chinese equities amid concerns about the country's economic recovery.

In India, financial contagion fears spread as the Adani Group's crisis worsened, with ratings agency Moody's warning the conglomerate may struggle to raise capital and S&P cutting the outlook on two of its businesses.

Elsewhere, the Russian rouble (RUBUTSTN=MCX) fell back against the U.S. dollar as the finance ministry said it would sell $2.3 billion worth of foreign currency in the month ahead to help plug a deficit in the state budget.

Key Latin American stock indexes and currencies at 1938 GMT: