Fighting back

9

The focus has been squarely on emerging markets over the last week, with one of the catalysts being the China PMI data released nearly a week ago. But the fightback against higher inflation and falling currencies has continued overnight. Yesterday it was India putting up interest rates and late in the US session it was Turkey, with their emergency policy meeting resulting in a substantial increase in interest rates.

The effective rate change was 2.25%, as the central bank shifted the effective rate from the old marginal lending rate to the new repo rate, so there are some different numbers being thrown around. The move did allow for a more settled feel to FX markets, the Turkish lira up nearly 5%, the yen losing some of its safe haven premium and the Aussie dollar also rallying a little into yesterday’s close.

The focus falls onto South Africa today where the central bank meets, but the same strains are not being seen there, with inflation more contained. Although the currency has been weakening through January, it is off the lows, but country remains reliant on overseas capital given its ongoing current account deficit, so vulnerabilities remain. As we suggested yesterday, we don’t expect this latest bout of EM nervousness will derail the Fed’s thinking that tapering should continue at a measured pace.

The announcement from their two day meeting is due at 19:00 GMT today, where we would expect to see a further USD 10bln of tapering of the monthly amount of bond purchases. Finally, note that the New Zealand central bank also has an interest rate decision at 20:00 GMT. Rates are seen steady, but there are some risks for a tightening or a change in tone in the accompanying statement. Either could easily move AUDNZD back to the 1.05 level which was briefly touched last week.

Further reading:

EUR/USD: Trading the US Advance GDP

UK GDP hits strongest growth rate for six years

Get the 5 most predictable currency pairs

About Author

Forex Broker FxPro is an international Forex Broker. FxPro is an award-winning online broker, offering CFDs on forex, futures, indices, shares, spot metals and energies, serving clients in more than 150 countries worldwide. FxPro offers execution with no-dealing-desk intervention and maintains a client-centric business model that puts customer needs at the forefront of our operations. Our acquisition of leading spot FX aggregator, Quotix, enables us to offer access to a deep pool of liquidity, as well as top-class order-matching and some of the most competitive spreads in the market. FxPro is one of only few brokers offering Negative Balance Protection, ensuring that clients cannot lose more than their overall investment. FxPro UK Limited is authorised and regulated by the Financial Conduct Authority (registration number: 509956). FxPro Financial Services Limited is authorised and regulated by the Cyprus Securities and Exchange Commission (licence number: 078/07) and by the South Africa Financial Services Board (authorisation number 45052). Risk Warning: Trading CFDs involves significant risk of loss.

9 Comments

  1. Pingback: Taper Tantrums or the Start of an Emerging Markets Forex Crisis? | Forex Crunch

  2. Pingback: AUD/USD recovery limited by weak PPI, risk aversion | Forex Crunch

  3. Pingback: Risk sentiment wanes as emerging markets remain in focus | Forex Crunch

  4. Pingback: Forex Weekly Outlook Feb. 2-7 | Forex Crunch

  5. Pingback: EUR/USD Jan. 31 – falls to low support on weak … | Forex

  6. Pingback: EUR/USD Feb. 3: Recovers, but unable to recapture resistance | Forex Crunch

  7. Pingback: EUR/USD Feb. 4 – Little Movement Ahead of Services PMIs | Signals News

  8. Pingback: EUR/USD Feb. 5 – Little Movement As PMIs Up, Retail Sales Down | Forex Crunch

  9. Pingback: EUR/USD Feb. 5 – Little Movement As PMIs Up … | Forex