Written by Devayani Sathyan and Vuyani Ndaba
BENGALURU/JOHANNESBURG (Reuters) – Most emerging market currencies are set to trade in narrow ranges or pare some of their year-to-date gains in the next three months after the U.S. Federal Reserve curbed expectations of deep interest rate cuts, according to Reuters. reconnaissance.
After suffering significant losses last year and in the first half of 2024, emerging market currencies made notable gains against the dollar in recent weeks after the Federal Reserve cut borrowing costs by 50 basis points.
However, the rally in emerging market currencies is coming to an end after Federal Reserve Chairman Jerome Powell indicated that the US central bank is likely to maintain interest rate cuts of a quarter of a percentage point in the future.
Rising geopolitical tensions have also directed investors towards the dollar as a safe haven and away from risk-prone emerging markets.
The broader foreign exchange survey expects the dollar to remain stable in the coming months.
Most emerging market currencies are expected to trade in a range or weaken slightly in the next three months, according to the survey conducted from September 30 to October 3 of 59 foreign exchange strategists.
“We do not expect… any further significant gains in the EMFX spot markets against the dollar. We expect a relatively even mix of winners and losers against the dollar by the end of the year,” said Phoenix Kallen, global head of emerging markets research. In Société Générale (OTC:).
“We don’t think the Fed money path will go much higher from here, so that limits the tailwinds for the dollar. But at the same time, it’s unlikely to go lower.”
The Thai baht and Malaysian ringgit are expected to lose between 1.2% and 2.0% in the next three months. It was expected to weaken by approximately 5.0% by then.
Expectations that the yuan will lose all of its gains since the beginning of the year over the next three months coincide with the People’s Bank of China unveiling its biggest stimulus since the pandemic, aimed at pushing the economy toward the government’s 5% growth target and away from deflation. .
Increased growth in China, an important trading partner for many countries, would greatly benefit emerging market currencies.
The median estimate showed that the Indian rupee will trade at 83.73 to the dollar in three months, which was little changed from last month’s forecast.
The South African rand was expected to decline by approximately 1% against the dollar in the next three months. It has risen about 8% in the past six months after the election in May.
“Right now, we are a bit cautious about EMFX next year due to the potential recovery of the dollar but at the same time we are monitoring what is happening in China and the stimulus measures there and how that affects the global commodities space,” he said. Mitul Kotecha, Head of Macro Strategy for FX and Emerging Markets at Barclays.
“The big caveat is that the US election is coming up and this could be something that sparks a degree of caution as we head into November.”
(Other stories from Reuters October foreign exchange rate survey)
Comments are closed, but trackbacks and pingbacks are open.