Recession fears drive EM currencies to 20-month lows



* Euro-linked currencies sink

* MSCI EM FX index lowest since Nov 2020

* Forint hits record low vs euro

By Sruthi Shankar and Devik Jain

July 5 (Reuters) - Emerging market currencies sank to their lowest in 20 months on Tuesday as the dollar stood tall amid growing worries of a recession, with a surge in European gas prices hammering markets in central and eastern Europe.

Euro-linked currencies such as the Hungarian forint HUF= , Polish zloty PLN= and Romanian leu RON= weakened by almost 2% against the dollar as the euro slumped to a two-decade low.

MSCI's index of developing world currencies .MIEM00000CUS dropped 0.4% to its lowest since November 2020.

European gas prices surged after flows from Russia dipped and strikes at Norwegian oil and gas infrastructure added to concerns over supply, exacerbating fears over spiralling inflation and slowing economic growth.

"The fear of recession is once again coming stronger," said Stuart Cole, head macro economist at Equiti Capital.

"The problem is that a lot of emerging market borrowing is denominated in the U.S. dollar. As the Federal Reserve raises interest rates, that is making the cost of debt borrowing more expensive, and at the same time, the value of the dollar is strengthening further."

A key part of the U.S. Treasury yield curve briefly inverted for the first time since mid-June, reflecting concerns that hefty interest-rate hikes could tip the U.S. economy into a recession.

The Hungarian forint EURHUF= tumbled to a record low versus the euro at 406.44 as a relief rally following the central bank's big interest rate hike last week proved short-lived.

The Polish zloty EURPLN= slid 0.5% ahead of its central bank meeting on Thursday, where the bank is expected to raise its main interest rate by 75 basis points to 6.75% to tame inflation that is running at a 25-year high.

Indian rupee INR=IN touched a record low at 79.15 per dollar, while Korean won KRW= ended down over 1% after data showed inflation last month hit a 24-year high.

Stock markets in Prague .PX , Warsaw .WIG20 and Budapest .BUX fell less than a percent, while South African equities .JTOPI dropped 1.3%.

The EM equities index .MSCIEF slipped as the souring global mood offset optimism over positive economic data in Asia and a report that U.S. president Joe Biden was leaning towards a decision on easing tariffs on goods from China.

For GRAPHIC on emerging market FX performance in 2022, see Link For GRAPHIC on MSCI emerging index performance in 2022, see Link

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For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see
Reporting by Sruthi Shankar and Devik Jain in Bengaluru; Editing by Vinay Dwivedi

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