Posted on 04/10/2022 11:21:13 AM PDT by datura
JOHANNESBURG/BENGALURU—Most emerging market currencies will continue to struggle against the mighty dollar over the coming year as the U.S. Federal Reserve finally delivers expected aggressive policy tightening, according to a Reuters poll of FX strategists.
Central banks in emerging market economies have been bracing for this for months by hiking their benchmark interest rates. But the actual moment when the Fed delivers half-point rate increases and rapid balance sheet reduction still matters.
Minutes from the Fed’s March meeting showed officials had generally agreed to trim the central bank’s balance sheet by $95 billion a month, providing a major boost to the greenback which was already riding high.
The latest Reuters poll of over 50 currency strategists showed nearly all developing market currencies would weaken over the coming 12 months.
Even currencies which have been dragged higher by the ongoing commodity cycle and their respective central banks’ policy tightening, like the Brazilian real and the South African rand, were forecast to give up about half of those gains in a year.
These currencies have gained about 18 percent and 9 percent respectively so far in 2022.
The Mexican peso—a classic emerging market foreign exchange hedge—is expected to lose more than three times its gains for this year in 12 months.
In the face of imminent sharp Fed hikes and with U.S. yields moving rapidly higher, the resilience of EMFX remains somewhat surprising,” noted Paul Meggyesi, head of FX strategy at JPMorgan.
“A particular risk to EMFX is that as the Fed starts to deliver rate hikes, further upside in U.S. yields could be primarily driven more by real yields than breakeven inflation”
Meggyesi added this has historically been negative for emerging market currencies.
While most emerging market currencies have managed to escape the onslaught of the Fed’s policy tightening relatively unscathed, the Russian rouble and the Turkish lira were notable exceptions.
The rouble, which fell by half in the past month and hit an all-time low of 150 per dollar after Russia’s invasion of Ukraine, was expected to weaken over 15 percent to 94.2 per dollar in a year from 78.5 presently.
The Russian currency is driven by export-focused companies selling foreign currency and low activity of importers. But analysts warned the recent rouble rally won’t last.
“(The recent gain) is not the true reflection of the fundamental situation in Russia. The economy is expected to contract very sharply and inflation is going to become more elevated, which over the longer term should be more consistent with a weaker rouble,” said Lee Hardman, currency analyst at MUFG.
Hardman said the situation for the Turkish lira wasn’t very different.
“They (the government) are intervening to support the lira but they’re not going down the kind of draconian measures like capital controls we see in Russia.”
The lira, which weakened 44 percent last year, was forecast to plunge another 15 percent to 17.27 per dollar in a year as it grapples with rampant inflation that hit a 20-year high of 61.14 percent in March.
China’s tightly controlled yuan was predicted to depreciate 1.4 percent to 6.45 per dollar in a year as analysts warned that a shrinking yield gap between Chinese and U.S. 10-year government bonds could trigger capital outflows.
Elsewhere in Asia, the Philippine peso and the Indian rupee were set to weaken between 1 percent–3 percent.
The maneuvering by BRICS will not remove the USD from its position, sorry to all here who keep hoping that happens.
I wonder whats what with gold supply stored under Wall Street???
I wonder whats what with gold supply stored under Wall Street???
The only major currency doing better than the dollar recently is the Ruble.
17 years ago MySpace was the default social network.
13 years ago it fell to second place and then kept falling.
Note what those who risk real money or provide guidance for those who do say about the US dollar and the BRICS currencies.
The invasion has cost Russia’s goodwill and standing almost universally, with the exception of BRICS and a few others. (Notably Mexico.)
It certainly appears that the Ukraine war has been a diversion to keep our eyes off of other activities around the world.
As the puppet master of the world’s economies, the owning families of the Fed have so far avoided the scrutiny which they so badly deserve. They also control the IMF and World Bank.
“The only major currency doing better than the dollar recently is the Ruble”
It’s a useful comparison. Currently the interest rates are 17% in Russia and 0.25% in the USA.
Thus current rates are based on investors needing a return 68 times greater to invest in the ruble over the USD.
“The invasion has cost Russia’s goodwill and standing almost universally...”
True today, but don’t be surprised that starts changing if Russia achieves its objectives. After all, there is a lot of yucky stuff in Ukraine that’s being kept bottled up, for now.
“It’s a useful comparison. Currently the interest rates are 17% in Russia and 0.25% in the USA. Thus current rates are based on investors needing a return 68 times greater to invest in the ruble over the USD.”
You have a valid point in your first sentence, but don’t start sounding like a journalist in your second sentence.
In any case we’ll see how things play out here as the Ruble is still climbing and giving Russia a chance to pull back on interest rates, as they did last week.
“Thus current rates are based on investors needing a return 68 times greater to invest in the ruble over the USD.”
Just about everything in trading is risk vs reward. Investors want 68 times more reward to hold rubbles. Not stating that is like claiming the product A sells just as well as product B without stating that A needed a 99% price discount to do that.
Clueless, gocha! Thanks.
Sounds like all of a sudden they realize Pootie-poot has a gold backed currency.
The Dollar Dethroned: We Have Reached The End Of Monetary Policy
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