currencies

A double dose of gloom from Capital Economics on Tuesday. Its proprietary EM GDP tracker – compiled from monthly data on output and spending as an advance proxy for GDP – shows growth slowing across emerging markets to its slowest pace since early last year. A separate report shows that while EM assets have suffered across the board this month, the pain has been particularly severe in Latin America and especially in Brazil.

First, here are the charts from the GDP tracker. They show growth across EMs slowing to 4.3 per cent year on year in July, down from 4.5 per cent in June. Capital says preliminary data for August suggest growth will be even slower, at 4.1 per cent. Continue reading »

As beyondbrics noted early this month, the recent “dollar surge” and rising US interest rates are already having an impact on EM currencies. Two weeks later and the effects are becoming more pronounced, as the charts below show.

First, US interest rates. This is the yield on 10-year US Treasury bonds this year.

Source: S&P Capital IQ

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By Márcio Garcia of PUC-Rio

Last year’s taper tantrum caused massive turbulence in global markets. Risky assets suffered greatly and many emerging markets currencies depreciated heavily, including the Brazilian real.

In response, the Brazilian central bank (BCB) decided to intervene in the foreign exchange markets. After an ad hoc beginning, from August 2013 the BCB announced a programme of sales of $2bn of exchange rate swaps every week, plus a weekly auction of $1bn in short term dollar credit lines to the banks. Continue reading »

By Márcio Garcia of PUC-Rio and Tony Volpon of Nomura

Since the “taper tantrum” of May 2013, emerging markets have been under pressure. While not configuring a 1990’s style “sudden stop”, with most EM FX markets doing better since the beginning of this year, the prospects for eventual monetary normalization by the US Federal Reserve nevertheless pose challenges for EM economies. Brazil has had specific problems during this period, showing a marked deterioration in macro fundamentals, with falling growth and rising current account deficits. For many investors, this has earned it an unfortunate place among so-called “fragile” countries.

Brazil’s central bank (BCB) has adopted a unique intervention strategy to face these pressures, which we analyse in a recent working paperContinue reading »

When Zambia last week approached the International Monetary Fund for financial help, another cash-strapped African country was surely watching: Ghana.

Lusaka and Accra face similar problems: runaway fiscal deficits – the result of electorally-driven increases in public sector salaries – and a swelling current account deficit that is pressuring the exchange rate.

The market response to Zambia’s request should convince Ghana to seek help, too. Continue reading »

A few months ago, fixed income investors couldn’t get out of Brazil, South Africa and Turkey quickly enough.

The rump trio of the so-called ‘fragile five’ emerging market economies were at the eye of a storm that roiled financial markets in January and pummelled their currencies as weaknesses in their economies were exposed.

Things have changed. Continue reading »

It’s a common trick to make yourself look bigger than you are to win a fight. Rather rarer is for one of the world’s largest and fastest-growing economies frantically and consistently to try to hide its size. China, the 500kg panda in the global economic room, is trying an increasingly unconvincing tactic of squeezing itself into a corner and hoping no-one notices it is there.

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Falling unemployment, improving exports and a rush back into emerging markets assets gave investors plenty of reasons to buy the South Korean won on Wednesday.

But they are not enough to explain the size of the swing in the exchange rate – a rise of more than 1 per cent to a six year high of 1041.75 against the dollar.

Could that be due to a shift in the stance of South Korean policy makers? Continue reading »

When the Pope met Queen Elizabeth on Thursday, there was one thing – doubtless to Argentine President Cristina Fernández’s great dismay – which was not on the agenda: the Falkland Islands (or, as the Argentine Pope might have called them, Las Malvinas).

As if to make up for that omission, Fernández ensured the disputed territory’s continued presence in Argentines’ minds by printing a map of the archipelago on a new 50 peso note (worth just over $6), with a stirring image of a gaucho who rose up against British rule in 1833 on the other side. Continue reading »

Well, that didn’t last long.

Source: dolartoday.com

Venezuela launched its long-awaited Sicad 2 dollar market on Monday, in what many hoped would be a step towards normalisation of the country’s dysfunctional foreign exchange market. Continue reading »

The Zambian kwacha has been one of the weakest currencies against the US dollar this year, losing more than 8 per cent of its value against the world’s reserve currency during the past month alone.

Source: Thomson Reuters

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Source: Thomson Reuters

Ukraine’s central bank is doing what it can to protect the hryvnia. Continue reading »

We did this a couple of days ago but here it is again: the $1.6bn bond of Naftogaz, Ukraine’s state gas company, due on September 30. If 30 per cent in less than eight months wasn’t apocalyptic enough, its yield has now gone to 34 per cent and counting. Does this look like some kind of endgame?

Source: Thomson Reuters

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Only last week, Nomura’s Peter Attard Montalto warned that Hungary’s central bank “appears to be playing with fire” in its insistence that “Hungary is different” and that – with inflation at all time lows – it can continue its rate cutting policy regardless of the bigger world out there.

Montalto published that on Thursday, when the forint had recovered from the worst of the buffeting it received earlier in the week, to trade in a range around Ft308 to the euro. Continue reading »