Tag: Dollar

Dollar firms, yen skids as US Fed cut wagers crumble

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The dollar was firm on Thursday after hotter-than-expected US inflation data squashed lingering expectations of the Fed starting its rate-cutting cycle in June, while the yen languished at the levels last seen in the middle of 1990.

The yen’s slide to a 34-year low of 153.24 per US dollar on Wednesday brought intervention fears back as authorities in Tokyo reiterated that they would not rule out any steps to deal with excessive swings.

“Recent moves are rapid. We’d like to respond appropriately to excessive moves, without ruling out any options,” Japan’s top currency diplomat Masato Kanda said.

Japan intervened in the currency market three times in 2022 as the yen slid toward what was then a 32-year low of 152 to the dollar.

On Thursday, the yen strengthened 0.20% to 152.88 per dollar, just below the 153.24 level touched on Wednesday after data showed the U.S. consumer price index rose 0.4% on a monthly basis in March, versus the 0.3% increase expected by economists polled by Reuters.

Kyle Rodda, senior financial market analyst at Capital.com, expects Tokyo authorities to keep talking tough and intervene if things look disorderly.

“The very interesting element is how the Bank of Japan eventually handles this … We might see greater hawkishness from here and that would be the catalyst for a more sustained turnaround,” Rodda said.

Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank would not directly respond to currency moves in setting monetary policy, brushing aside market speculation that the yen’s sharp falls could force it to raise interest rates.

The Japanese central bank last month ended eight years of negative interest rates but yen has remained rooted near 151 per dollar levels since then.

Low Japanese rates have made the yen the funding currency of choice for carry trades for years, in which traders typically borrow a low-yielding currency to then sell and invest the proceeds in assets denominated in a higher-yielding one.

US Fed wagers

Following the inflation data, traders drastically dialled back their bets on interest rate cuts this year as well as when the Federal Reserve will start its easing cycle.

Adding to those doubts, minutes from the Fed’s March meeting, released on Wednesday, show policymakers were already disappointed by recent inflation readings before the latest report.

Markets are now pricing in an 18% chance of the Fed cutting rates in June, compared with 50% before the CPI data, according to CME FedWatch tool, with September turning out to be the next starting point for rate cuts.

Traders are also pricing in 43 basis points of cuts this year much lower than the 75 basis points of easing projected by the U.S. central bank. At the start of the year, traders had priced in over 150 bps of cuts in 2024.

The latest trends in core CPI are moving in the wrong direction for the Fed to gain enough confidence on inflation by the time of the June FOMC meeting, according to Kevin Cummins, chief US economist at NatWest.

“We now expect the first cut (25 bps) to occur at the September meeting (instead of June) followed by two additional cuts this year.”

The hot inflation report led to U.S. Treasury spiking higher and taking the dollar index, which measures the greenback against six rivals, more than 1% higher on Wednesday to near five month peak of 105.30. The index was last at 105.13 on Thursday.

The yield on 10-year Treasury notes eased a bit to 4.554% in Asian hours, hovering near the five month peak of 4.568% it touched on Wednesday.

The euro was last at $1.0744, having dropped 1% on Wednesday ahead of the European Central Bank meeting later in the day. The ECB is expected to stand pat on rates but the focus is on comments from officials to see whether June will be the starting point for cuts in the region.

Sterling was last at $1.2538, up 0.06% on the day. The Australian dollar was little changed at $0.651, while the New Zealand dollar eased 0.17% to $0.598.

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Rupee weakens 1.5% in FY24, but registers best year in three

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The rupee ended the financial year with a fall of 1.5% against the US dollar as compared to a close to an 8% decline in FY23. The local currency fared even better compared to other emerging market currencies, despite headwinds like surging oil prices and a strengthening dollar. The currency ended the last day of the year at 83.40.

While the crude prices rallied as much as 19% from its December lows, the dollar index gained 3.5% to 105 during the same period. India has been vulnerable to high global oil prices as the country imports 87% of its oil demand. A high oil prices would widen India’s current account deficit (CAD) and thereby putting pressure on the currency.

However, cheaper oil imports from Russia, buoyant services exports and resilient remittance inflow have cushioned volatility in oil prices. In FY24, India imported over 35% share of its crude oil imports from Russia. The share of Russian crude oil in India’s total volume of imports was a mere 2% in FY22 and 20% in FY23. Additionally, foreign flows of $40 billion to equity and debt markets also supported the currency.

Economists at UBS believe India can sustain global crude oil prices up to $90/bbl, all else remaining unchanged, but the lower the oil goes, the better it would be for the country. The Brent is currently hovering at $87.2/bbl. UBS, which revised its rupee target for the next year said, “Reflecting the current account balance forecast revisions, we shift our USDINR end-FY25 forecast from 84 to 82.”

Among the emerging market, rupee has outperformed most of its peers barring Mexican Peso and Brazilian Real. Notably, the Mexican Peso had the most favourable outlook among emerging-market currencies, according to an HSBC survey of 121 investors from institutions overseeing $362 billion of EM assets. The rally in the peso has been driven by a combination of high-interest rates, low volatility and ample liquidity. While the peso surged 9% in FY24, Brazilian Real gained 1.6%.

Further, the inclusion of Indian Government Bonds in global bond indices is perceived to be a big tailwind for the currency. In September 2023, JP Morgan announced its decision to include India’s bond in its Global EM local Currency Government Bonds Index as of June 2024. Similarly, in March this year, Bloomberg also announced its decision to include India’s Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices, phased in over 10 months, starting at the end of January 2025.

Market participants expect these indices’ inclusion will attract inflows to the tune of $25-30 billion over the next year.

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Stocks flat, oil climbs as dollar cornered by yen and yuan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stock markets took a breather on Monday from their record highs of recent sessions as investors looked to an abbreviated trading week, capped by key US inflation data on Friday, due to the impending Easter holiday.

US stock index futures were slightly weaker. Market participants are hoping that Friday’s US price data will back investor bets for a June interest rate cut by the Federal Reserve. Boeing Co was a focus on Wall Street after the planemaker said its CEO Dave Calhoun would step down by year-end amid a sprawling safety crisis.

Oil benchmark Brent hovered close to $86 a barrel as hostilities intensified in the Middle East, and between Russia and Ukraine, with energy infrastructure targeted in the two-year-old war.

The dollar slipped, with the threat of currency intervention from Japanese authorities and a government-driven rally in China’s yuan weighing on the U.S. currency. The yen was within striking distance of a 32-year low as Japan’s top currency diplomat said on Monday the unit’s weakness did not reflect fundamentals.

The MSCI All Country stock index was down 0.1%, though still only about 5 points below its all-time high of last Thursday. In Europe, the STOXX index of 600 companies was a touch weaker at 508.10 points after hitting a lifetime high of 510.46 points on Friday. Goldman Sachs raised its 2024 target for the benchmark to 540 from 510, citing potential improvement in economic growth and rate cuts.

US stock indexes also hit record highs last week, with the S&P 500 on Friday ending with its biggest weekly percentage gain of 2024 after the US Federal Reserve stuck with projections for three rate cuts by year’s end.

Jason Da Silva, director of global investment strategy at Arbuthnot Latham, said the Fed’s comments gave markets some comfort and Monday’s signs of consolidation in stocks should not be surprising after the momentum seen so far this year.

“The market is just taking in what it’s seen in the last week or two, but unless there are any major surprises in either inflation or growth, it’s hard to see where the market cracks come through,” Da Silva said.

US INFLATION DATA

The main data event of the week will be the US core personal consumption expenditure (PCE) price index on Friday, which is seen rising 0.3% in February, keeping the annual pace at 2.8%. Analysts say that anything higher would be taken as a setback to bets for a Fed rate cut in June.

Many markets are closed for the Easter break on Friday when the PCE data is due for release, so the full reaction may not come until next week. Fed Chair Jerome Powell was sufficiently dovish last week to leave futures implying around a 74% chance of a June easing, up from 55% a week earlier.

Powell will participate in a moderated discussion at a policy conference on Friday, while Fed governors Lisa Cook and Christopher Waller are also appearing this week.

Europe has its own inflation tests with consumer price data out from France, Italy, Belgium and Spain, ahead of the overall EU CPI report on April 3. Sweden’s central bank meets on Wednesday and is generally expected to keep rates at 4.0%.

In Asia, Japan’s Nikkei dipped 1.1%, having spiked 5.6% last week to a fresh all-time peak as the yen weakened. Even a shift away from super-easy policies by the Bank of Japan (BOJ) could not dent the dollar, as investors assumed it was not the start of a series of hikes and futures imply a rate of just 20 basis points by year-end.

The dollar was at 151.22 yen, having climbed 1.6% last week to a peak of 151.86. Markets are wary of testing 152.00, a level that has drawn Japanese intervention in the past. The euro was at $1.0831, having been dragged down in the wake of the Swiss franc after the SNB’s rate cut.

The strength of the dollar had taken some shine off gold, though the metal was edging higher again to $2,174 an ounce, after hitting a record peak last week. Oil prices were underpinned by Ukraine’s attacks on Russian refineries, along with data showing a fall in US rig counts.

Brent rose 0.3% to $85.74 a barrel, while U.S. crude firmed 0.4% to $80.98 per barrel. Both benchmarks have risen steadily this year, up between 11 and 12.5% by Friday’s close.

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China’s banks move to support yuan as stock markets collapse

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China’s major state-owned banks moved to support the yuan on Monday, tightening liquidity in the offshore foreign exchange market while actively selling US dollars onshore as equities slid, four sources with knowledge of the matter said.

The goal was to prevent the yuan from falling too fast as China’s A shares plunged, said one of the people, with the benchmark Shanghai Composite index posting its biggest one-day drop since April 2022 on Monday, down 2.7%.

“It is a clear policy signal to stabilise the yuan and counter the negative market sentiment on equities,” said Gary Ng, senior economist for Asia Pacific at Natixis.

Overseas funds have sold roughly $1.6 billion in Chinese equities so far this year, with investor confidence bruised by signs of slowdown in the world’s second largest economy.

Offshore yuan tomorrow-next forwards jumped to a more than two-month high of 4.25 points late on Monday, reflecting signs of tighter liquidity conditions.

The rise come as state banks in the offshore market curtailed lending to their peers, one of the sources said.

The move effectively tightened up offshore yuan liquidity and raised the cost of shorting the currency.

Meanwhile, the state banks were also selling dollars in the onshore spot foreign exchange market to prevent rapid yuan declines, three sources said.

Spot dollar selling became aggressive to defend the 7.2 per dollar level, one of them said.

All the sources spoke on condition of anonymity as they are not allowed to publicly discuss market conditions.

State banks often act on behalf of China’s central bank in the foreign exchange market, but they could also trade on their own behalf or execute clients’ orders.

The onshore yuan last traded at 7.1963 per dollar, down nearly 1.4% so far this year, while its offshore counterpart last fetched 7.2047.

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Stocks rise as dollar falls, gold rallies on US Fed commentary

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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MSCI’s global stock index turned higher on Tuesday while the dollar fell as a Federal Reserve official suggested that the US central bank was done raising rates and could even consider rate cuts if inflation keeps easing.

Gold prices were up more than 1%, hit a more than six-month high and tracking for their fourth consecutive gain with help from the retreating dollar and hopes for easier Fed policy.

The US dollar however hit a roughly three-and-a-half-month low against a basket of peers after Fed Governor Christopher Waller flagged the possibility of lowering the Fed policy rate in the months ahead if inflation continues to come down. Waller also said he was “increasingly confident” the current interest rate setting will prove adequate to lower inflation to the Fed’s 2% target.

Another Fed governor Michelle Bowman said the US central bank will likely need to raise borrowing costs further in order to bring inflation back down to its target.

But, traders appeared to take their cues from Waller with increased bets for the first rate cut taking place as soon as March with the probability for a 25 basis-point cut last at nearly 35%, up from 21.5% on Monday, according to the latest data from CME Group’s Fedwatch tool.

The majority are expecting a cut of at least one notch in May, according to CME data. Also on Tuesday, a survey showed US consumer confidence rose in November after three months of declines, though households still anticipated a recession over the next year.

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“We’re chopping around here. This is a late-cycle environment where we’re still waiting for the lagged impact of higher interest rates and the economy is still being supported by all that fiscal stimulus we did in the last several years,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management in Boston.

The Dow Jones Industrial Average rose 173.95 points, or 0.49%, to 35,507.42, the S&P 500 gained 16.77 points, or 0.37%, to 4,567.2 and the Nasdaq Composite added 60.57 points, or 0.43%, to 14,301.59. The pan-European STOXX 600 index lost 0.27% and MSCI’s gauge of stocks across the globe gained 0.45%.

Later this week the spotlight will be on the US October personal consumption expenditures report (PCE), which includes core PCE, which is the Fed’s preferred measure of inflation. Also, euro-zone consumer inflation figures should give further clarity on where prices and monetary policy are headed there.

In currencies, the dollar index fell 0.388%, with the euro up 0.37% to $1.0994. The Japanese yen strengthened 0.79% versus the greenback at 147.51 per dollar, while Sterling was last trading at $1.2692, up 0.53% on the day. After the Fed commentary, US Treasury yields dipped with benchmark 10-year notes down 3.8 basis points to 4.350%, from 4.388% late on Monday.

Oil futures gained steam on the possibility that OPEC+ would deepen supply cuts at a meeting scheduled for Thursday due to a storm-related drop in Kazakh oil output, as well as the weaker US dollar. US crude rose 2.64% to $76.84 per barrel and Brent was at $82.03, up 2.56% on the day. In precious metals, Spot gold added 1.1% to $2,036.49 an ounce.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Dollar hovers near two-and-a-half month lows, easing pressure on yen

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The dollar index held around two-and-a-half-month lows after minutes of the US Federal Reserve’s last meeting did little to dislodge market expectations that its monetary tightening cycle was over.

The US Fed minutes showed the central bank would proceed “carefully” and that “all participants judged it appropriate to maintain” the current rate setting.

Fed officials agreed they would only raise interest rates if progress in controlling inflation faltered, reiterating recent comments by policymakers that left the door open for more tightening even as markets have moved to price in cuts from early next year.

“The release of the FOMC November minute did little to sway the opinion that the Fed have reached their terminal rate,” said Matt Simpson, senior market analyst at City Index.

Markets are all but certain that the Fed will hold rates at their December meeting, while pricing in about a 30% chance of a rate cut as early as March, according to CME’s FedWatch Tool.

The dollar index, which measure the greenback against a basket of currencies, was flat at 103.58, near levels last seen in early September but off an overnight session low of 103.17.

The euro last sat at $1.0912 after rising to its highest against the dollar since mid-August to $1.0966 on Tuesday.

Sterling was mostly flat at $1.2534, not far from a two-month high of $1.2554 touched overnight.

“We’re seeing signs that the dollar bearish move is running out of steam” and could be “due to bounce,” Simpson said, adding that the greenback has a tendency to weaken and then strengthen around the time of the U.S. Thanksgiving holiday, which happens on Thursday.

U.S. Treasury yields, which have buoyed the dollar, have also tumbled from multi-year highs hit in October as investors ramp up bets that the Fed is done hiking rates following a slowdown in U.S inflation in the same month. Treasury yields slipped again overnight to hover around 4.40%, easing further pressure on the yen.

The Japanese yen advanced around 0.1% versus the greenback to 148.28, clinging to recent gains after ticking up slightly from as low as 147.155 overnight.

While speculation that the Bank of Japan could exit from negative interest rates early next year should help stabilise the yen, the Japanese currency still faces strong headwinds.

Recent U.S. data have pointed to the resilience of the world’s biggest economy, bolstering the Fed’s soft landing narrative.

US “growth after the current rebalancing is still expected to outperform, which will support US earnings and yields,” said Tony Sycamore, market analyst at IG.

The dollar still holds “a significant yield advantage over the (yen),” he added.

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Dollar set for weekly slide as US inflation cools

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The dollar was headed for its largest weekly drop for months against the euro, yen and franc on Friday, as investors sold in anticipation of almost 100 basis points of U.S. interest rate cuts next year.

At $1.0854 to the euro, the dollar has shed 1.6% for the week, its steepest fall since mid-July. It is also down 1.6% for the week to 0.8882 Swiss francs and has even lost 0.6% to trade at 150.53 on the out-of-favour yen.

Oil hit four-month lows on Thursday and Walmart said it will cut prices, adding to the disinflationary pressures that data this week showed had steadied U.S. consumer prices and convinced investors inflation is in retreat and rate increases are over.

Thursday’s batch of weak U.S. economic data also reinforced that stance. Futures markets have priced in 98 basis points of Fed rate cuts next year, compared with 73 bps a week ago.

“While the amount of easing factored in appears aggressive, the direction of travel looks right,” said Peter Dragicevich, strategist at cross-border payments firm Corpay in a note.

“The U.S. inflation pulse has turned, and the negative consequences of past policy tightening is starting to manifest,” he said.

Also Read: Asia stocks hang onto weekly gains as yields, oil fall

“As the next Fed easing cycle comes into view, U.S. yields move lower, and U.S. growth comes back to the pack, we are looking for the USD to gradually deflate over the next few quarters.”

Sterling is up 1.5% for the week at $1.2410. The Australian and New Zealand dollars lost a bit of shine on Thursday, when signs of a slowing U.S. economy knocked commodity prices but they remain set for weekly gains.

Moves in Asia trade on Friday were small, leaving the Aussie at $0.6466, up 1.7% on the week, and the kiwi at $0.5960, up 1.2% on the week.

China’s yuan was eyeing its best week in two months and traded near a three-month high at 7.2447 per dollar.

“As soon as markets become confident a Fed rates peak is in … prevailing dollar strength will be seen to be on borrowed time,” strategists at National Australia Bank said in a note.

Several European Central Bank speakers appear later on Friday, British retail sales data is due along with U.S. housing starts. In cryptocurrencies, bitcoin is set to snap a four-week winning streak with a modest 1.8% fall to $36,416.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Barclays sees dollar strength persisting into early 2024, anticipates rupee weakness ahead

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The currency markets are currently undergoing significant changes, particularly with the US dollar’s impact on emerging market currencies. Mitul Kotecha, Head of FX and EM Macro Strategy Asia at Barclays, in an exclusive interview with CNBC-TV18, provided his insights on this dynamic landscape.

Kotecha anticipates that the dollar will maintain its strength in the coming months, particularly into the first quarter. However, he expects a moderation in the dollar’s performance later next year. This shift could pressure emerging markets and Asian currencies, including the Indian rupee, which is currently rangebound but may weaken in the next year, potentially reaching around 83.8 against the dollar.

“Our view is that ultimately the rupee could see a weaker footing as we go into the next year potentially around 83.8 before we see some downward move in dollar rupee,” he explained.

The rupee demonstrated resilience in morning trade on Wednesday, November 15, appreciating 32 paise to 83.01 against the US dollar. This rise followed the US dollar’s retreat from its high levels after US inflation data came in lower than expected. Forex traders noted that the rupee’s bullish start was due to the weakening of the US dollar post the inflation data, reaching its highest level in nearly two months.

On November 13, the rupee touched an all-time low of 83.33 against the dollar.

Amit Pabari, MD of CR Forex Advisors, observed that the rupee is currently trading at nearly a two-month high around 83.00 levels. He cautioned that a breach below 82.95 could lead to further downside, with levels of 82.80 and 82.50 becoming crucial in the sessions to come.

In the broader economic context, the dollar index showed a marginal uptick of 0.02% to 104.07, following a recent high of 105.77 on Monday (November 13).

As global economic dynamics continue to evolve, the currency markets remain sensitive to key indicators, with the dollar’s strength and the rupee’s performance drawing attention from investors and analysts alike. The coming weeks are likely to witness fluctuations in these currencies, influenced by factors such as inflation trends, oil prices, and broader market sentiments.

Samiran Chakraborty, Chief India Economist at Citibank, indicated that inflation in India could hover within the range of 5.6-5.9%.

“There is not really a big respite over the next two months. We think that the next two prints could be in the range of 5.6% to 5.9% — pretty close to the 6% mark and that is why it is difficult for the Reserve Bank of India (RBI) to immediately move into some sort of an easing mindset — probably wait for a more sustained drop towards 4% mark, observe that and then only consider some easing which we think is not before the middle of next year,” he said.

As inflation remains a critical factor influencing economic decisions, the forecasted range offers a glimpse into the challenges and opportunities that may shape India’s economic landscape in the coming months.

For more, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rupee hits a new low as RBI ends jinx of 83.30; Refinitiv gets a rap

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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It was an eventful Friday for the forex markets. Entirely out of the blue, the rupee broke the one-year-old support level of 83.30 and traded close to 83.40 for the better part of the day before strengthening to close at 83.34, a new all-time closing low. We will get to the mid-day drama of panic when the electronic trading system froze in a bit.

Market reporters struggled to find a reason for the rupee’s fall today because crude is a good 20% below its October highs and the dollar index is 2% off its October highs. Yet the Indian currency has remained in a tight range of 83.05 to 83.30 for almost 30 trading sessions from September 26 to November 9.

In these seven weeks, US yields have climbed from 4.3% to 5% on October 19 and back again to 4.6%. The dollar index swayed from 105.5 to 107 (on October 3) and back to 105.9 today. Brent crude went to a high of $97 per barrel on September 26 and tumbled to a low of 79.20 on November 9. All these are seminal to the dollar-rupee, and the currency should have bounced in an 8–10% range.

But no, the rupee remained in a tight 0.2% range of 83.05 to 83.29 thanks to heavy intervention by the RBI, mostly in the NDF (or non-deliverable forwards), which is an offshore market in countries like Hong Kong and Dubai where hedge funds punt on the currency.

The strong intervention by the RBI in these markets nullified any speculative attack on the rupee in late September when crude held around $95 per barrel for nearly a week. This intervention also nullified rupee shorts when US 10-year treasury yields surged to 5% in mid-October.

But the RBI’s intervention in the NDF markets only nullifies the speculators, a dealer at a large private bank explained. The inherent demand for dollars from FPIs pulling out their equity investments in India and from Indian oil companies remains.

Today, the RBI apparently chose to let go. It had to, at some point, end the bogey of protecting the 83.30 level, and it probably chose a day when crude and the dollar index were calm. So the fall today wasn’t swift or speculative, but backed by genuine buyers.

However, there were 13 long moments of madness around noon when the rupee, which was holding around 83.38/39, suddenly fell to 83.45. The reason was an outage on Refinitiv, the electronic FX trading platform. FX traders couldn’t log in, and a brief panic gripped the market. But by 12.15, calm was restored as the platform started working again.

Clearly, the RBI was not amused. Refinitiv has been asked to explain the circumstances that led to the outage and if the standard operating procedures relating to business continuity were in place and were followed. It has also asked Refinitiv if it was a technical outage or a human error. The central bank is right to be concerned since such outages can cause uncertainty and even panic in the markets and lead to large losses.

But aside from the brief drama, today will be remembered by FX market watchers as the one when the RBI unloaded the yoke of 83.30. It’s unclear why RBI has chosen this level and stuck to it for so many turbulent weeks. For traders, it is the hereafter that matters more. Most see 83.50/$ as the next support for the rupee, while some think a decline towards 84 can’t be ruled out by the end of the fiscal year.

The RBI likes a gently depreciating rupee to adjust to the inflation differential, as dealers have explained in the past. Also, selling dollars closer to 84 can help the RBI post some profit and declare a handsome dividend to the government this year.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Emerging market currencies to claw back ground in 2024 as dollar fades: Reuters poll

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Emerging market currencies will take well into next year to start making noticeable gains against a retreating U.S. dollar, despite a growing view the interest rate cycle has peaked, a Reuters poll of FX strategists showed.

After getting battered for most of 2023, emerging market (EM) currencies have made modest gains against the dollar after the Federal Reserve held interest rates steady last week and data suggested the U.S. economy might finally be slowing.

That dollar weakening trend was likely to hold in the near-term as a majority of analysts in the Nov. 3-7 Reuters poll expected the dollar to trade lower by year-end.

However, with most EM central banks expected to follow the Fed and cut rates next year, their respective currencies were unlikely to recoup double-digit losses they have accumulated over the past couple of years.

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“We’ve seen already some pretty sharp gains last week, but the recent gains aren’t extending because there is still uncertainty about the Fed … and at the same time the U.S. is still performing better than most other economies,” said Mitul Kotecha, Head of FX & EM Macro Strategy Asia at Barclays.

“So it’s difficult to see the EM currencies recoup some of the sharp losses that we’ve seen in the last few months. That said, we do expect some gains, it’s just going to be a bit more of a gradual path.”

This excludes the Russian rouble, which has lost 27% this year, and the Turkish lira, which is down 52%.

Only a few Asian currencies, such as the Indian rupee, Thai baht, and South Korean won were expected to recoup their losses by late 2024. In the near term, the rupee is forecast to trade in a narrow range.

Although EM currencies gained at the beginning of 2023 and investors brimmed with positivity after China’s post-COVID reopening, economic performance in the world’s second largest economy has been mostly underwhelming.

Indeed, the tightly-controlled Chinese yuan was forecast to only recoup slightly more than half of its 2023 losses. It has fallen over 5% this year.

The South African rand is set to gain less than 1% while the Turkish lira is set to fall around 16% in a year.

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Latin America’s stand-out currencies, the Brazilian real and Mexican peso, have gained around 8% and 11% respectively since the year began, although some of their central banks have already begun cutting rates.

The peso is expected to lose around 4.5% while the real is seen losing just over 2% in 12 months.

“Easier Fed monetary policy should also take some pressure off select emerging market currencies in the second half of next year,” noted Nick Bennenbroek, international economist at Wells Fargo.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow