Dollar Rallies Against Emerging Market-Currencies
November 10 2016 - 4:16PM
Dow Jones News
By Ira Iosebashvili
The dollar rose against emerging-market currencies on Thursday,
as investors unwound bets on developing countries amid expectations
that interest rates will continue to rise in the U.S.
The U.S. currency was recently up 5.3% against the Brazilian
real, while notching a 5.5% gain against the South African rand and
rallying 4.3% against the Mexican peso. The Wall Street Journal
Dollar Index, which measures the U.S. currency against 16 others,
was recently up 0.7% to 89.48, its highest since March.
A selloff in government bonds accelerated momentum on Thursday,
sending interest rates higher, as investors reacted to the prospect
of increased fiscal stimulus under a Donald Trump presidency. The
jump in yields is making it less-profitable for investors to run
carry trades, a strategy in which market participants borrow in
dollars to invest in higher yielding emerging market
currencies.
As a result, some market participants are locking in profits on
currencies that have shown big gains this year, such as the real
and the rand. Many also believe protectionist policies Mr. Trump
has advocated will hurt economies that depend on exports to the
U.S., particularly Mexico.
"High yielding currencies are now feeling the pain from rising
yields," said Paresh Upadhyaya, director of currency strategy at
Pioneer Investments.
A conciliatory victory speech by Republican president elect
Donald Trump on Wednesday and pledges by central banks to intervene
in currency markets if necessary have helped calm investors in the
days since the U.S. election.
If markets remain sanguine, many believe, there will be little
to stop the Federal Reserve from raising rates in December, a move
that would boost the dollar by making it more attractive to
yield-seeking investors.
Federal-funds futures, used to speculate on central bank policy,
on Thursday showed investors assigned a 76.3% likelihood of a rate
increase in December, compared with 71.5% the previous day.
The dollar was up 1.1% at Yen106.86 against the Japanese
currency. The euro was down 0.2% at $1.0891.
Write to Ira Iosebashvili at ira.iDollar Rallies Against
Emerging Market Currencies osebashvili@wsj.com
(END) Dow Jones Newswires
November 10, 2016 17:01 ET (22:01 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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