Devayani Sathyan and Vuyani Ndaba
BANGALORE/JOHANNESBURG (Reuters) – Most emerging market currencies will struggle to make up for this year’s losses against the dollar in coming months as expectations of aggressive rate cuts from the U.S. Federal Reserve weaken, a Reuters poll of currency strategists showed.
After ending 2023 on a positive note, gains in a basket of emerging market currencies fizzled out and fell 1.2% for the year as US Treasury yields rose.
Better-than-expected US economic data and hawkish comments from Fed policymakers caused investors and markets to abandon rate cut forecasts, leading to a 3% rise in just a few weeks.
Nearly all emerging-market currencies will struggle to make up year-to-date losses in six months, according to a Feb. 2-6 Reuters poll of 50 currency strategists.
“The rally that we expected, especially in currencies and rates, has already materialized. Emerging market currencies are relatively very fairly priced… and we don’t expect them to appreciate much,” said Phoenix Cullen, global head of emerging markets. research at Societe Generale (OTC:).
“The Fed’s rate cuts are already well priced, and the effects of US exceptionalism are still playing out, and this will have positive implications for the dollar index and negative implications for emerging market currencies.”
While the Indian rupee is forecast to rise by only about 0.6% by the end of July, the Thai baht and South Korean won, which have lost 3.4% and 2.5% respectively this year, are forecast to rise by about 3%. .5% over the next six months.
While emerging market currencies have been largely dependent on the global interest rate cycle, led largely by the Fed, growth headwinds in China remain a key headwind.
Over the next six months, the company was forecast to simply recoup its 1.3% loss this year.
It was expected to rise about 2.3% to 18.41/$ over the six months, catching up with emerging markets’ overall gains, but that would still not make up for last year’s nearly 7% fall.
Goldman Sachs wrote in a note that the rand offers one of the most attractive combinations of value and real value, supported by softer inflation forecasts.
However, it remains one of the most dollar-sensitive emerging market currencies, making risk rewards less attractive on its underlying trajectory of a more gradual, broader dollar depreciation.
Over the next six months, the Russian ruble is expected to lose almost 2% to 92.28/$, while the Turkish lira is expected to weaken by more than 9% to 33.67/$.
(As for other stories from the February Reuters currency survey:)