Emerging market currencies hit their highest level in nearly four months on Thursday and stocks gained as dovish remarks from the U.S. Federal Reserve Chairman Jerome Powell put the dollar on the back foot.

However, stocks markets in China and Hong Kong weakened as a cautious mood crept in ahead of the high-stakes meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 Summit this week.

Powell said on Wednesday the central bank’s policy rate is now “just below” estimates of a level that neither brakes nor boosts a healthy U.S. economy.

Investors read the comments as a signal of the Fed’s three-year tightening cycle drawing to a close, boosting appetite for risk.

A cumulative impact of a string of rate rises by the Fed since 2015 has sucked money out of emerging markets this year.

“The main driver for the currencies today is the comments by the governor which indicates the Fed may be looking to pause rates sometime next year which is a huge boost to risk sentiment across markets,” said Khoon Goh, Singapore-based head of Asia research for ANZ Banking Group.

Most emerging currencies benefited from the falling dollar with the South African rand hitting near 4-month highs, shrugging off data showing that credit demand growth had slowed in October.

The Turkish lira strengthened one per cent finding support from a data that showed the economic confidence index in November had bounced off from last month’s decade low.

The Indian rupee hit a three-month high.

A Reuters Poll showed that the Reserve Bank of India won’t raise interest rates at a meeting on Dec. 5 and until at least April 2019, much later than thought just one month ago.

The MSCI’s index for emerging market stocks rose 0.7 per cent hitting a 3-week high, despite losses in heavyweight stock indexes in China and Hong Kong.

“The markets in China have taken a cautious stand ahead of the Xi-Trump meet as there is obviously some risk that further escalation of tariffs is still possible,” said Goh.

“The rest of the Asian markets seem to be on a rally mainly due to the fall in 10-year U.S. Treasury yields and oil prices coming off,” Goh said.

Ten-year U.S. treasury yields fell to over two-month lows, boosting indexes in South Africa, India and Turkey which rose between 0.7 per cent and 1.6 per cent.

In Eastern Europe, the Hungarian forint rose 0.2 per cent against the euro as data showed investments in the country rose significantly in the third quarter, driven by projects financed from European Union development funds. (Reuters/NAN)