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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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza