# Worst not over for EM currencies as U.S. dollar thunders on: Reuters poll
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-09-07
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Emerging Market Currencies Struggle Amid Fed Rate Hikes
Meta Description: Find out why emerging market currencies are struggling to regain ground against the USD due to Fed rate hikes and safe-haven demand, as highlighted by Reuters
URL: https://financedigest.com/worst-not-over-for-em-currencies-as-u-s-dollar-thunders-on-reuters-pollhtml

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By Vuyani Ndaba and Vivek Mishra

JOHANNESBURG/BENGALURU (Reuters) – Emerging market currencies will find it difficult to reclaim ground lost this year as relentless Federal Reserve rate hikes and safe-haven demand keep the dollar ascendant, a Reuters poll of currency strategists found.

A stampede into the greenback pushed the wider index of emerging market currencies to its lowest in two years on Tuesday amid growing worries of global recession.

The Sept. 1-6 Reuters [survey of currency strategists showed more of the same trouble ahead](https://www.financedigest.com/european-stocks-slip-on-dour-german-sentiment-survey-ahead-of-powell-speech.html "European stocks slip on dour German sentiment survey ahead of Powell speech"). Almost all beaten-down EM currencies were [expected to weaken or at best cling to a range over the next](https://www.financedigest.com/suedzucker-expects-to-raise-its-sugar-prices-again-next-year.html "Suedzucker expects to raise its sugar prices again next year") three months.

EMFX will continue to go through a period of elevated volatility until the [USD reaches](https://www.financedigest.com/pvdc-coated-films-market-is-projected-to-reach-usd-12-3-billion-by-2028-at-a-cagr-of-4-6-from-2022-to-2028-fmi.html "PVDC Coated Films Market is projected to reach USD 12.3 billion by 2028, at a CAGR of 4.6% from 2022 to 2028: FMI") a climax,” noted Phoenix Kalen, director of emerging markets strategy at Societe Generale.

Not only has the market over the past month reverted [back to pricing in a more aggressive pace of FOMC rate hikes](https://www.financedigest.com/uks-bellway-to-buy-back-shares-hike-social-housing-output.html "UK’s Bellway to buy back shares, hike social housing output"), but the underlying context of global growth has continued to deteriorate … and downside China surprises add to the myriad [challenges facing](https://www.financedigest.com/under-saved-and-underprepared-women-face-challenges-saving-for-retirement.html "UNDER-SAVED AND UNDERPREPARED: WOMEN FACE CHALLENGES SAVING FOR RETIREMENT") EM FX.

During past U.S. tightening cycles emerging [market central banks](https://www.financedigest.com/market-stress-indicators-react-sharply-after-u-s-bank-failures.html "Market stress indicators react sharply after U.S. bank failures") usually tried to match or better the pace of the Fed but this time they have failed to keep up.

This has put pressure on EM currencies, [driving India’s rupee and Philippine’s peso to record](https://www.financedigest.com/inflation-drives-britains-record-christmas-grocery-sales.html "Inflation drives Britain’s record Christmas grocery sales") lows. \[INR/POLL\]

Nearly three-quarters of analysts, 41 of 56, who answered an additional question said EM currencies would fall against the [dollar in the next three months](https://www.financedigest.com/european-shares-hit-nine-month-high-dollar-wobbles-after-powell-remarks.html "European shares hit nine month high, dollar wobbles after Powell remarks"), including six who said they would fall significantly.

FX analysts also [warned that the Chinese](https://www.financedigest.com/chinese-fret-over-elderly-as-who-warns-of-holiday-covid-surge.html "Chinese fret over elderly as WHO warns of holiday COVID surge") yuan, which is down about 9% this year, is affecting emerging market counterparts more than ever before and may have a profound effect on their performance over the coming year.

The [Fed is not going to be the only factor keeping the dollar](https://www.financedigest.com/dollar-pauses-for-breath-as-fed-swings-into-focus.html "Dollar pauses for breath as Fed swings into focus") strong. EMFX remains undermined by renminbi weakness,” said Francesco Pesole, FX strategist at ING.

Unless [China presents some sizable fiscal stimulus or abandons its zero COVID](https://www.financedigest.com/who-urges-china-to-share-specific-data-regularly-on-covid-situation.html "WHO urges China to share specific data regularly on COVID situation") strategy, EMFX will continue to trade poorly.

While the [Reuters poll](https://www.financedigest.com/germany-home-prices-to-sink-nearly-6-this-year-reuters-poll.html "Germany home prices to sink nearly 6% this year – Reuters Poll") median for China’s yuan suggests the currency would strengthen, Mitul Kotecha at TD Securities said there are growing signs, including from recent yuan fixings, that the People’s Bank of China is uncomfortable with the pace of CNY depreciation.

The authorities will favour some depreciation to [support exports but will remain wary of a rapid](https://www.financedigest.com/synapse-appoints-new-finance-and-operations-manager-to-support-the-rapid-growth-of-the-business.html "Synapse appoints new Finance and Operations Manager to support the rapid growth of the business") decline in the currency as reflected in recent PBOC push back. We expect such resistance to be maintained, especially ahead of the Communist Party Congress in mid-October,” added Kotecha.

[South Africa’s](https://www.financedigest.com/inmobi-and-coca-cola-win-mma-smarties-south-africa-award-for-beat-can-campaign.html "InMobi and Coca-Cola Win MMA SMARTIES South Africa Award for Beat Can Campaign") rand meanwhile has taken on a more favourable outlook in comparison to other EM currencies. The high-yielding rand was [expected to erase most of its losses](https://www.financedigest.com/dollar-set-for-weekly-loss-amid-expectations-fed-will-slow-hikes.html "Dollar set for weekly loss amid expectations Fed will slow hikes") made so far this year, gaining about 6.0% to 16.30/$ in a year.

Turkey’s lira is down nearly 26% this year, in addition to the 44% it lost last year, as Turkey’s central [bank slashed interest rates even as inflation](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel") was soaring. [Inflation exceed 80% in August](https://www.financedigest.com/spain-august-final-12-month-inflation-at-10-5.html "Spain August final 12-month inflation at 10.5%").

The worst-performing emerging market currency this year, the lira was set to [fall about 16% to 21.66 per dollar](https://www.financedigest.com/dollar-falls-to-nine-month-low-as-powell-notes-progress-in-disinflation.html "Dollar falls to nine-month low as Powell notes progress in disinflation") in the next 12 months.

Russia’s rouble, which was propped up by capital controls and had artificially risen to [become the world’s](https://www.financedigest.com/snowboarding-british-teenager-brookes-becomes-the-youngest-world-champion.html "Snowboarding-British teenager Brookes becomes the youngest world champion") best-performing currency so far this year, is expected to weaken more than 15% to 71.00/$ in a year.

(For other stories from the September [Reuters foreign exchange poll:)](https://www.financedigest.com/global-2023-economic-view-downgraded-at-odds-with-market-optimism-reuters-poll.html "Global 2023 economic view downgraded, at odds with market optimism: Reuters poll")

(Reporting by Vuyani Ndaba in JOHANNESBURG and Vivek Mishra in BENGALURU; Polling by Anant Chandak, Arsh Mogre and Devayani Sathyan; Editing by Ross Finley and Nick Zieminski)


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