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.