Emerging market currencies set for biggest weekly drop since August

Emerging market currencies are on course to perform their worst weekly performance since Turkey’s currency crisis in August as a strong dollar coupled with political and economic woes battered the asset class. The MSCI’s broad currency index has fallen about 0.8 per cent since Monday, attended by Turkey and Argentina as it marked six successive days of deterioration that placed it on track for the biggest weekly decline in eight months.

The Argentine peso has been the lowest-performing currency this year with a 16.4 per cent decline versus the dollar. The Turkish lira, dropping 2 per cent this week, has returned to a level last seen in October. The repeated pressure on the Turkish lira came as the central bank backed away from its earlier promise to raise interest rates if demanded, coupled with questions over the level of foreign currency reserves. The Argentine peso, down 7 per cent this week, faces another round of selling pressure. The popularity of President Mauricio Macri’s government is dwindling as the country suffers from accelerating inflation and a recession ahead of a presidential election in October. The central bank last week tightened monetary policy in an attempt to curb inflation while the government re-launched price restrictions.

Concerns over pressure from the government of President Tayyip Recep Erdogan on monetary policy were revived on Thursday as the Turkish central bank left its primary policy rate unchanged at 24 per cent but excluded a reference added in March that “further monetary tightening will be delivered” if needed. With inflation close to 20 per cent and the lira down 11 per cent since the start of the year, analysts expect the central bank’s 5 per cent inflation target to be missed by a wide margin.

South Korea’s currency the Won also dropped this week following the release of poor growth data that showed the export-led economy suffering its first quarterly contraction since the global financial crisis. The Korean won lost approximately 1 per cent after the announcement of government data on gross domestic product. It continued that decline to more than 2 per cent for the week.