Fed continues tapering despite Emerging Markets turmoil

Fed continues tapering despite Emerging Markets turmoil


Emerging Markets currencies extended their losses against the dollar today. And
Investors have contused to sell off assets on EM since the last week. Especially after Chinese manufacturing index dropped and recorded a six-month low rate.

 In addition, Fears about emerging economies intensified after the Federal Reserve decided yesterday to continue withdrawing $10 billion of its monetary stimulus.
 Fed Chairman Ben Bernanke claimed the U.S economic outlook improved; even employment market has showed some improvements.

All the investors and markets monitor the recent drop on almost of the Emerging Markets currencies. Let’s see the aspects and reasons of the EM turmoil.

For example, Turkey, India, Brazil and a series of emerging market countries are being forced to tighten monetary policy to stop capital running away despite the collapsing growth.

On the other hand South Africa’s central bank raised the interest rates , so the rand decreased near a record low at 11.06  against the  dollar.

Also the High volatility has sent the Russian Ruble its lowest level since February 2009.

During this week, the Turkish Lira and Argentine Peso dropped sharply, and the Turkish benchmark equity index dropped more than -2%. Especially after The Turkish central bank raised its overnight lending rate to 12 percent from 7.75 percent on Tuesday  Jan 28th . Consequently,  the local investors have been selling the lira in favor of foreign currencies, and international investors have been staying away from the Turkish currency, pushing its value down to record lows earlier this week.

Asian stocks and European shares fall with limited gains due to vulnerable Emerging Markets.

Furthermore, the EM turmoil concerns have affected not only the global stocks but also the precious metals and commodities.

For instance, Gold futures pushed higher during Wednesday trading session, as fresh concerns about the health of emerging-market economies raised the demand for the precious metal and Japanese Yen as safe havens.

However the Gold has resumed its bearish trend after the Fed tapering decision and the positive GDP data have affected the precious metal safe haven appeals. While the dollar held gains following the Federal Reserve's decision to taper its bond purchasing program.

In addition, the crude oil dropped near $97.79 in Asian trading session on Friday and Brent crude is trading below $ 108 a barrel, amid expectations of lower demand for oil because of the emerging markets issue, and  raising concerns about the growth of the Chinese economy.

We can certify  that  the emerging markets play a great role in the global economic stage , and the recovery of the worldwide economy depends not only on developed countries like USA and Japan , but also on Emerging Market economies.

MBCFX Forex & CFDs Brokerage Firm