BENGALURU/JOHANNESBURG, Nov 8 (Reuters) – Emerging market currencies will advance well into the next year and start making noticeable gains against the retreating U.S. dollar, a Reuters survey of FX strategists showed. However, the interest rate cycle has peaked.
After being battered for most of 2023, emerging market (EM) currencies have gained modestly against the dollar after the Federal Reserve kept interest rates steady last week and data suggested the US economy could finally slow. Is.
The dollar’s weakening trend is likely to persist in the near term as most analysts in a Nov. 3-7 Reuters poll had predicted the dollar would trade lower by the end of the year.
However, with most EM central banks expected to follow the Fed and cut rates next year, their respective currencies were unlikely to recover the double-digit losses suffered over the past few years.
“We have already seen some sharp gains last week, but recent gains are not continuing as there is still uncertainty about the Fed… and also the US is still performing better than most other economies,” he said. Used to be.” Mitul Kotecha, Head of FX and EM Macro Strategy Asia at Barclays.
“So it’s hard to see EM currencies recovering some of the sharp losses they’ve seen over the past few months. That said, we expect some gains, it’s just going to gradually creep up a bit more.”
This does not include the Russian ruble, which has fallen 27% this year, and the Turkish lira, which is down 52%.
Only a few Asian currencies, such as the Indian rupee, Thai baht and South Korean won, were expected to recover their losses by the end of 2024. In the near term, the rupee is projected to trade in a narrow range.
Although EM currencies rallied early in 2023 and investors were filled with positivity following China’s post-Covid reopening, economic performance in the world’s second-largest economy has mostly been disappointing.
Indeed, the tightly controlled Chinese yuan was projected to offset slightly more than half of its 2023 losses. This year it has declined by more than 5%.
The South African rand is likely to gain less than 1% while the Turkish lira is set to decline by about 16% in a year.
Latin America’s leading currencies, the Brazilian real and the Mexican peso, have risen about 8% and 11% respectively since the beginning of the year, although some of their central banks have already started cutting rates.
The peso is expected to decline by about 4.5% in 12 months while the real is seen to decline by just over 2%.
“Easy Fed monetary policy should relieve some pressure on select emerging market currencies in the second half of next year,” said Nick Benenbrock, international economist at Wells Fargo.
(For other stories from the November Reuters Forex Survey:)
Reporting by Devyani Sathyan and Vuyani Ndaba; Polled by Anant Chandak; Editing by Hari Kishan, Ross Finlay and Mark Potter
Our Standards: The Thomson Reuters Trust Principles.
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