Emerging Market Currencies to Struggle as Dollar Remains Strong: Reuters Poll

Introduction

Emerging market currencies are expected to face challenges in recovering from their losses this year, according to a Reuters poll of FX analysts. The strength of the US dollar, driven by high US Treasury yields and safe-haven demand amid a slowing Chinese economy, is likely to keep these currencies under pressure.

Background

The wider index of emerging market currencies recently hit a two-week low due to a surge in the US dollar and US Treasury yields. The dollar index has risen more than 5% since July, putting downward pressure on risky emerging market currencies. This trend is similar to what was observed last year when the Federal Reserve began raising interest rates.

Analyst Predictions

In the Reuters poll conducted from September 1-6, most emerging market currencies were forecasted to make little or modest gains against the dollar in the next year, with some potentially seeing small gains in the next three months. However, it is unlikely that these currencies will fully recover from their losses so far this year.

Factors Influencing Emerging Market Currencies

• The strength of the US dollar is a major factor affecting emerging market currencies.
• The underperformance of China’s economy has also had a significant impact on these currencies.
• China’s yuan has fallen about 6% this year, which has hurt commodity exporters.
• Central banks in emerging Asian countries are expected to manage stability using FX reserves.
• South Africa’s rand may benefit from an easing in power cuts and improved investor sentiment.
• Turkey’s lira is expected to continue its decline due to various economic factors.

Conclusion

Emerging market currencies are facing challenges in recovering from their losses this year. The strength of the US dollar, along with the underperformance of China’s economy, has put pressure on these currencies. While some modest gains may be seen in the next few months, it is unlikely that these currencies will fully recover in the near future.