WHY HAS EMERGING MARKET CURRENCIES WEAKEN AGAINST US DOLLAR

there are a number of reasons why emerging market currencies have been weakening against the US Dollar… 1) Excessively loose monetary policy in the developed markets (The Fed, The ECB, The BOJ and the Bank of England) 2) Speculation that the Fed will not hike interest rates as previously expected 3) Emerging markets economies are slowing down…China is slowing down…Brazil, Russia and India are slowing down…this will lead to a slowdown in the global economy and will put downward pressure on the US Dollar 4) Emerging market economies are a lot more sensitive to a depreciating US Dollar than developed market economies Here is an excellent article on the subject from the Wall Street Journal… One of the most interesting questions in the current global market environment is why emerging-market currencies, which are down year to date and have been hit especially hard in the past two weeks, have been so weak The dollar has appreciated against every G-10 currency except the Japanese yen The answer is that most emerging-market currencies are much more sensitive to the dollar than the advanced economies In other words, a stronger dollar is a stronger dollar everywhere, and a weak dollar is a weaker dollar everywhere, but the dollar moves much more strongly in emerging-market currencies This pattern is now more pronounced than it has been in the past and is likely to continue To test the sensitivity of each currency to the dollar, we can compare the year-on-year change in the dollar to the change in the local currency The chart below shows the result (The chart shows the change in the nominal exchange rate for each local currency against the dollar ) The relationship between the dollar and the Mexican peso is particularly extreme The peso has fallen year to date against the dollar, while the dollar has appreciated