JOHANNESBURG/BENGALURU : Battered emerging market currencies will struggle to hold on to recent gains towards year-end as U.S. Federal Reserve interest rate hikes and inflation concerns keep the dollar in the forefront, a Reuters poll found.
A majority of FX strategists in the May 30-June 1 poll said the dollar's recent weakness would be short-lived and it would strengthen against most emerging market currencies by end-August. Almost all past emerging market crises were linked to dollar strength. As the dollar rises, developing countries must tighten monetary policy to head off falls in their own currencies. Not doing so would exacerbate inflation and raise the cost of servicing dollar-denominated debt.
Societe Generale's Phoenix Kalen said the spectre of high and sticky inflation amid a choppy global growth outlook is likely to haunt markets during the near term. Turkey's lira is down nearly 20 per cent this year, in addition to the 44 per cent it lost last year, as Turkey's central bank slashed interest rates even as inflation was soaring. Inflation is expected to reach 76.55 per cent in May.