Turkish lira per US dollar, 3 months to Feb 4. Source: Thomson Reuters
The Turkish lira went on a fresh slide on Wednesday, adding to its losses over the past fortnight. Investors have no doubt been alarmed by the pressure piling on Turkey’s central bank from the luscious new presidential palace in Ankara. But the lira’s new weakness may also signal an unwinding of some strongly bullish positions on Turkish local debt taken by foreign investors in recent months. Read more
It’s been a few years since the guns of the international currency wars fell silent, or at least until the main combatants turned most of their attention to other things.
With the strength of the dollar, however, the issue might easily re-emerge. If it does, even if the eurozone and Japan are the main initial targets, emerging markets are unlikely to be able to sit out a renewed burst of hostilities. Read more
The gloom continues to darken over the outlook for Brazil’s economy this year but, for the time being, investors are betting that the country’s very high interest rates are worth the risk.
The central bank’s latest weekly survey of market economists shows the consensus on economic growth this year falling yet again, to just 0.38 per cent. Inflation expectations, meanwhile, have crept up again, to 6.67 per cent, beyond the upper limit of the government’s target range. Read more
TRY per USD, week to Jan 16. Source: Thomson Reuters
Turkey’s President Recep Tayyip Erdogan has got embroiled in interest rates again – and the country’s currency immediately felt the impact.
Erdogan’s allergy to high interest rates is well known, as is his insistence that there is something out there called “the interest rate lobby” that drives rates up in a bid to enfeeble the Turkish economy. But all the same he was in fine form in a speech on Friday. Read more
This is what happened to the Hungarian forint and the Polish zloty, measured against the euro, after the Swiss central bank abandoned its currency peg on Thursday.
Source: Thomson Reuters
As Brazil’s outgoing finance minister, Guido Mantega, bids “tchau” to his former job , he has at least one thing to feel good about.
While the economy is a shadow of what it was when he took office eight years ago, he does seem to have succeeded in at least one major policy – his campaign to weaken Brazil’s currency, the real.
The man who is credited with making the term “currency war” his own seems to have won his battle to weaken the Brazil’s currency in the face of a tide of foreign speculative hot money. Read more
In the long-running battle between contagion and differentiation in emerging markets, contagion currently has the upper hand. That’s hardly surprising when you look at the size of the shock coming out of Russia and the failure of Monday night’s 650 basis point interest rate rise to deal with it. Nothing on this scale has been seen since 1998.
Rouble per US dollar, year to date. Source: Thomson Reuters
But contagion is not absolute and some EM currencies are bucking this month’s sharp falls, at least for now. Below, we present charts that show how the big EM currencies are faring in these times of extreme stress. Read more
Russia’s 10-year bond yield has climbed for the 10th consecutive day to a new five-year high of 12.4 per cent as investors continue to exit the country’s financial markets, fast FT reports.
The rouble regained its footing somewhat last week, but only thanks to central bank intervention. It is today once again the world’s worst performing major currency, falling 1.4 per cent to 53.62 per US dollar (see chart below). Read more
Beyondbrics recently warned that spiralling interest payments on hard currency bonds might yet cause EM corporates a big headache. The pain may be drawing closer: the recent slide of Asian currencies against the dollar looks even worse when you strip out the renminbi, which is holding its own, and the Japanese yen.
Source: Record Currency Management
There could be a serious knock-on effect on domestic banks if firms are forced to loot cash deposits to meet debt repayments. Read more
Source: Thomson Reuters
Nigeria’s central bank on Friday tried to drawn a line under the naira – but the market continues to increasingly bet on a devaluation after the elections set for early 2015. Read more
Source: Thomson Reuters
The Russian rouble dived deeper to new lows on Friday, as the central bank’s decision on Wednesday to let the currency float failed spectacularly to put a floor under the exchange rate. It went briefly through Rbs48 to the dollar during the morning before recovering slightly, down from a low of Rbs45 to the dollar on Wednesday.
“People are in disbelief. The rouble is being smashed again,” said Timothy Ash of Standard Bank. “The central bank is nowhere.” Read more
As the rouble continues its decline – hitting a new low against the dollar and euro this week – it is Russian consumers who will feel the sharpest pain, says Capital Economics, thanks to increasing inflation, which had already risen in September to its fastest pace in three years. Read more
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. Read more
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
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. Read more
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 paper. Read more
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. Read more
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. Read more
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.
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? Read more