Emerging Market Currencies Pitch High, Debt Stable on Hopes of Stimulus

On Friday, the emerging market currencies gained broadly after comments from the US Federal Reserve’s head increased hopes for extra stimulus measures.

Ben Bernanke, the chairman of Fed, delivered a speech in Jackson Hole, Wyoming on Friday, which was closely watched by everyone. The investors hoped that he would pronounce a 3rd round of purchasing bond, called as quantitative easing (QE3) to support the US economy.

The earlier quantitative easing rounds had been related to a weaker dollar and profits for highly yielding assets such as emerging market bonds and currencies. Bernanke did not give out any solid plans for such actions, but analysts told that his comments had given the way for a possible announcement at the September rate setting meeting of Fed.

Brown Brothers Harriman’s head of emerging-market currency strategy, Win Thin said that it did seem like he was actually setting a new stage for QE3.  However, analysts like Thin tip off that the upcoming US economic data had to be weak enough to substantiate such a program, especially the vital nonfarm payrolls statement on September 7th.

For example, Faros Trading’s head of research, Dan Dorrow is informing his customers to position for discontent from Bernanke not proclaiming QE3 in September. He felt that there was no information in the speech that he gave.

Inspite of such ambiguities, the emerging market currencies moved forward against dollar with few progressing higher than 1 percent. According to CQG, the Mexican peso, strongly associated with the economy of its North US neighbor, climbed 1.1 percent against dollar. Analysts feel that the Mexican peso could be a probable beneficiary of US easing.

Similar to peso, Rand from South Africa also seemed to progress in line with the broader markets and rallied. It moved up by around 0.9 percent against US currency, trading at ZAR8.3954.

In the meantime, the 2nd quarter GDP statement of India stepped in much better than anticipated; however, it still exhibited indications of weakness. Economy developed 5.2 percent in the 2nd quarter as against a year before. Indian rupee soared up little against dollar, trading at INR55.52.

The emerging currencies of Europe leaped against US dollar, even though it experienced more modest profits against Euro. The Polish zloty climbed 1.2 percent, while Turkish lira jumped 0.5 percent. The dollar bought PLN3.3152 against zloty and TRY1.8184 against lira.

The debt of emerging market was a bit modified, inspite of the optimistic markets.

Leave a Reply

Your email address will not be published. Required fields are marked *