Emerging market currencies are forecast to drift higher over the coming year, but much depends on the Federal Reserve delivering interest rate cuts starting around mid-year, according to FX analysts polled by Reuters. Developed economy central banks are broadly expected to reduce rates faster than developing ones, which may redirect capital to emerging markets, bolstering EM currencies and helping central banks to manage inflation. But nearly all of that hinges on the extent of Fed rate cuts.
The outlook for Asian currencies is similar. China’s tightly-controlled yuan, which has already fallen about 2% so far this year, was predicted to recoup those losses in the next six months. The Indian rupee has been kept within a very tight range for over a year by Reserve Bank of India intervention and was expected to trade between 82.50 and 83.11 per dollar for the next six months.
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