* Fed decision due at 1800 GMT
* S.African rand extends gains ahead of cenbank meeting
* Czech crown steady after slipping to over two-month lows
* EM stocks at two-week high
Sept 16 (Reuters) - Emerging market currencies scaled seven-month highs on Wednesday, with the Chinese yuan reaching a 16-month peak and the Turkish lira recovering slightly from new lows, as investors awaited the U.S. Federal Reserve’s policy announcement.
Details are anticipated after the Fed unveiled a policy shift in August allowing for greater tolerance towards inflation. Traders bet an ultra-accommodative Fed in the face of a coronavirus-induced recession would weigh on the U.S. dollar, which traded steady before the decision due at 1800 GMT.
“The market expectation is that the Fed’s new ‘dot plot’ forward guidance will be prepared to flag rates on hold until well into 2023,” said Michael Every, global strategist at Rabobank.
“The argument is then between those who think the Fed watching the weeds grow waiting for inflation to sprout is bullish EM FX, and those who think the fact that the Fed is having to do that means that EM central banks will be diving in with debt monetisation, which is very bearish.”
Russia’s rouble was holding steady after a three-session losing streak, and South Africa’s rand was on course for gains for a fourth successive session. Central bank meetings in both countries later this week are also on the radar.
China’s yuan climbed 0.3% as the People’s Bank of China signalled greater tolerance for gains in the currency.
Turkey’s lira made marginal gains after slipping to new lows against the dollar earlier in the session.
Tensions with Athens, a Moody’s downgrade and worries about depleting foreign exchange reserves are among factors that have weighed on the lira this year. It is one of the worst performing among emerging market peers, with a nearly 21% decline.
Among emerging markets in central and eastern Europe, the Czech crown stabilised after sinking to the weakest level against the euro in more than two months after a rise in coronavirus cases.
The Polish zloty rose 0.3%, a day after the central bank left interest rates unchanged, saying it saw economic recovery continuing in coming months.
Emerging stocks rose 0.3% to a two-week high, extending gains for a fourth straight session. For GRAPHIC on emerging market FX performance 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2020, see tmsnrt.rs/2OusNdX
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