BENGALURU : Emerging market currencies are headed for more trouble next year as mounting expectations the Federal Reserve will raise interest rates to quell inflation are set to keep the mighty U.S. dollar in the driving seat, a Reuters poll showed.
"For EM currencies, the worst is not yet behind us, as growth and inflation challenges persist into 2022, while U.S. 10-year Treasury yields are anticipated to march relentlessly higher through next year," noted Phoenix Kalen, head of emerging markets research at Societe Generale. "Our negative EMFX view was based on higher U.S. rates and continued growth fears in China. While there is risk to higher real rates in the U.S., it is hard to not expect much weaker growth in China."The most actively traded emerging market currency, the Chinese yuan, was predicted to depreciate over 1per cent to 6.47 per dollar in a year as the economy is slowing after a strong rebound from the pandemic-driven slump early last year.
Turkey's battered lira, which has already lost a fifth of its value this year, was expected to shed another 6per cent to 10.09/US$ in a year. "In these circumstances, we expect the lira to weaken further with a heightened risk that weakness will overshoot."