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Dovish Fed stance heralds good times for Emerging Market currencies

Publication Date: 05 Feb 2019 - By ReachX Team By ReachX Team
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FX & Rates FX Global

The South African rand, Turkish lira and Russian rouble have been major emerging (EM) market forex beneficiaries of a risk-on environment demand, according to a leading City forex analyst. 

In a note to clients, Kit Juckes, Head of FX at Société Générale, said many EM currencies appreciated the dovish message from the US Federal Reserve last week, in particular the aforementioned. 

(Source: Société Générale CIB)

Juckes added: “In Latin America, the Brazilian real's star continues to rise and while it lags rand and rouble so far this year, it is the pick of all the major currencies in the last week and up by over 5% against the dollar so far this year. 

“The Chilean and Colombia pesos have been helped by rising commodity prices alongside dovish Fed commentary, but the Mexican peso has run into a brick wall. In the six weeks to mid-January USD/MXN fell by 8%, but since then it has chopped around between USD/MXN 19 and 19.25.”

He also noted the Chinese yuan is still stronger than it was a week ago, and a good bit stronger than most expected in the first few weeks of 2019. “That has supported all of EMFX, but the shine came off after weak Caixin PMI data. Still, the only Asian currency down against the dollar this week is Indian rupee, buffeted by political concerns and by (slowly) rising oil prices.”

As for G10FX, the SocGen expert said last week saw continued gains in global equity markets, at least in the US and China. 

“Crude oil prices are pretty much unchanged but iron ore, copper and gold are all stronger and that general feel-good, along with hopes of a US/Chinese trade deal, propped up AUD, CAD, NZD and NOK. EUR and JPY are up marginally against the dollar. SEK and CHF barely changed, but the real story was the January risk rally and the question is whether it is now going to run out of steam." 

 

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