Strong USD Spells Trouble for Emerging Markets

The US dollar continued to soar in value over Wednesday night, signalling the likelihood of more interest rate rises and spelling trouble for developing countries that have borrowed heavily in the greenback.

With impressive service sector data published on Wednesday and strong jobs figures in the non-farm payrolls expected on Friday, the dollar hit an 11-month high against the yen and drove US treasury yields to their highest since mid-2011. The pound slipped below $1.30.

Rising US bond yields indicate that the Federal Reserve, under its hawkish chairman Jerome Powell, is likely to keep raising interest rates from their current 2.25% well into 2019. They are also unfavourable for emerging markets as they tend to draw away much-needed foreign funds while pressuring local currencies.

The Australian dollar, which is seen as a proxy for emerging Asian markets, slipped below US$0.71 and seems set to dip further. The Indian rupee fell to an all-time low against the dollar on Thursday morning of 73.77 while the Indonesian rupiah has plunged to a 20-year low.

via The Guardian

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