Recession woes and soaring dollar hit emerging market currencies

Oliver2022-09-28

Currencies in emerging economies fell to their lowest level in nearly 28 months on Wednesday as fears of a more aggressive U.S. Federal Reserve and a global economic slowdown pushed investors into the arms of the safe-haven dollar.

The MSCI Emerging Markets Currency Index fell 0.9% at 0847 GMT as the dollar hit a new two-decade high against a basket of currencies.

« It’s another day of deteriorating risk sentiment and we’re seeing that reflected in emerging market currencies, partly driven lower by a rise in long-term US yields…Markets are clearly fearful before the United States enters a recession and with that, the global economy,” said Per Hammarlund, chief emerging markets strategist at SEB.

“The only thing that could change that is that we potentially see signs that the dollar could top and then we could have a temporary rally in emerging market currencies.”

China’s onshore yuan fell to its weakest level since the 2008 global financial crisis, while offshore trading hit a record high, even as China’s central bank announced new measures this week, making it more expensive to bet against the currency.

A source also told Reuters on Tuesday that China’s monetary authorities were asking local banks to revive a peg for the yuan as they seek to steer and defend the rapidly weakening currency.

Shanghai stocks fell 1.6%, while broader emerging market stocks lost 2.0%.

Russian equities extended their rally amid volatile trading conditions triggered by President Vladimir Putin’s mobilization order, while the ruble eased against the dollar.

The Turkish lira fell 0.2% after hitting a record low in the previous session.

The European Bank for Reconstruction and Development (EBRD) said Turkey’s economy is expected to grow at a rate of 4.5% this year, raising its forecast of 2.0% from six months ago in a sign of high consumption in the face of inflation.

The South African rand lost 0.8% against the dollar.

Central and Eastern European currencies were mixed against the euro, with the Hungarian forint losing 1% daily after its massive 125 basis point rise.

The Indian rupee was entrenched at historic lows as traders suspected intervention by the Reserve Bank of India was preventing the currency from weakening further.

India’s long wait to be included in JPMorgan’s Emerging Markets Debt Index was set to be pushed back to next year due to a number of issues New Delhi needed to address, sources said. For 2022 Emerging Markets FX performance chart see http://tmsnrt.rs/2egbfVh For 2022 MSCI Emerging Market Index performance chart see https://tmsnrt.rs/2egbfVh

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For the RUSSIAN market report, see (Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Alex Richardson)

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Oliver2022-09-28