2023-11-08 01:20:04
It won’t be until next year that emerging market currencies begin to make notable gains once morest a weakening U.S. dollar, despite a growing perception that the interest rate cycle has peaked. according to a Archyde.com poll of foreign exchange market strategists.
After being battered for most of 2023, emerging market currencies posted modest gains once morest the dollar following the Federal Reserve held interest rates on hold last week and data suggested that the American economy might finally slow down.
This weakening dollar trend is expected to continue in the near term, as the majority of analysts polled by Archyde.com Nov. 3-7 expected the dollar to decline by the end of the year.
However, with most emerging market central banks expected to follow the Fed and cut rates next year, their respective currencies are unlikely to recover the double-digit losses they have accumulated over the past two years.
“We’ve already seen some pretty big gains last week, but the recent gains aren’t sustained because there’s still some uncertainty surrounding the Fed…and at the same time the U.S. is performing better than the most other economies,” said Mitul Kotecha, head of currencies and macro strategy for Asia at Barclays.
“So it’s difficult to see EM currencies recovering some of the significant losses we’ve seen in recent months. That said, we do expect some gains, but in a bit more gradual fashion.”
That excludes the Russian ruble, which has lost 27% this year, and the Turkish lira, which has fallen 52%.
Only a few Asian currencies, such as the Indian rupee, Thai baht and South Korean won, are expected to recover their losses by the end of 2024. In the short term, the rupee is expected to move within a narrow range.
Although emerging market currencies rose in early 2023 and investors were brimming with optimism following China’s reopening, economic results from the world’s second-largest economy were mostly disappointing.
Indeed, China’s tightly controlled yuan is expected to recover only a little more than half of its losses in 2023. It has fallen more than 5% this year.
The South African rand is expected to gain less than 1%, while the Turkish lira is expected to fall around 16% in a year.
Latin America’s most important currencies, the Brazilian real and the Mexican peso, have gained regarding 8% and 11%, respectively, since the start of the year, although some of their central banks have already started cutting interest rates. ‘interest.
The peso is expected to lose around 4.5% and the real a little over 2% in 12 months.
“The Fed’s easing of monetary policy should also reduce pressure on some emerging market currencies in the second half of next year,” said Nick Bennenbroek, international economist at Wells Fargo.
(For other articles from the November Archyde.com foreign exchange poll:)
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