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Emerging Market Currency Values Are Not All About The US Fed

There is a consistent thread of discussion regarding the impending Fed rate hike and its impact on various markets, which are known to front-load the expected returns impact of the entire series of hikes in the first hike. Such forward expectations of relative value are common, as a change in interest rates impacts the expected returns not just in bonds, but any market that considers U.S. Treasuries as one barometer of return of "safe" assets. When return of safe assets rises, a value adjustment across the risk curve should be expected. What a higher U.S. interest rates does is increase returns expectations of “safe” investments, making them more attractive relative to risky alternatives, and thus change the expectation of acceptable returns. At times this can get overdone, or mis-analyzed, which is where a recent Source Multi-asset research piece comes in play.

Emerging market currencies

U.S. Fed tightening being considered as reason for sinking emerging market currency values

The recent sharp decline this month of emerging market currencies is being attributed to a significant degree to the forthcoming potential for Fed tightening. But this rational is not the only issue at play, report authors Paul Jackson and Andras Vig observe. To understand the real issues in...