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Emerging Currencies Dip as Dollar Strengthens on US Economy Data

Strong US durable goods orders boost dollar, weighs on EM FX

Emerging equities rise in tandem with global markets

Tweet on Emerging currencies vs US dollar

Bloomberg news on US currency

Currencies across emerging markets dipped as traders grew cautious over a strengthening dollar and amid lingering concern about the health of China’s economy.

The MSCI emerging-market currency index fell 0.1% Tuesday after economic data from the US on durable goods orders came in stronger than expected. While the offshore yuan strengthened after the PBOC set a strong reference rate, it failed to trigger a broader rally.

“The strong People’s Bank of China fix for CNY helped stabilize sentiment on EM FX early, but the dollar is starting to recover and that’s weighing on EM currencies now,” said Win Thin, strategist at Brown Brothers Harriman. “The mood is very cautious.”

Investors in emerging markets are waiting for the start of the Federal Reserve’s rate-cut cycle to see how the dollar and Treasury yields will fare. Analysts at Barclays expect higher-carry emerging markets to trade well for now, given expectations of lower US rates. But long term, a shallower US easing cycle will inevitably weigh on EM assets, they predict, noting still-tight spreads to US rates.


Source: Bloomberg
Image: US Dollar