Fed Rate Expectation Keep Hammering EM Currencies

Emerging-market currencies weakened, led by the Turkish lira, and developing-nation stocks fell for a fourth day amid concern U.S. interest rates may rise faster than investors anticipated.

The lira and South African rand both depreciated 1.1 percent versus the dollar, while South Korea’s won decreased 0.8 percent. Benchmark equities gauges in Turkey and Egypt declined at least 1.1 percent. OAO Sberbank paced a 0.8 percent gain in Russian shares after European Union governments put on hold the imposition of new sanctions.

The MSCI Emerging Markets Index retreated 0.7 percent to 1,087.76 at 1:33 p.m. in London, poised for the longest losing streak since Aug. 8. Low volatility across financial markets may signal investors are underestimating how quickly the Federal Reserve will raise interest rates, according to researchers at the San Francisco Fed.

“The Turkish lira remains one of the most fragile currencies,” Martial Godet, the head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “Forecasts of Turkey’s current-account deficit still stand among the highest in emerging markets.”

The lira weakened to 2.1990 per dollar, the lowest level since March 25 on a closing basis. Turkey’s current-account gap was 7.5 percent of gross domestic product at the end of the first quarter, the most among major emerging markets, according to data compiled by Bloomberg.

via Bloomberg

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