The worst selloff in emerging-market (EM) currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by political and financial instability.
The Turkish lira plunged to a record and South Africa’s rand fell yesterday to a level weaker than 11 per dollar for the first time since 2008. Argentine policy makers devalued the peso by reducing support in the foreign-exchange market, allowing the currency to drop the most in 12 years to an unprecedented low.
“The gradual erosion of sentiment for the EMs, owing to the perception that several EM economies or countries are ‘on the brink,’ simply made the run on reserves in Argentina and the poor China data the ‘straws that broke the camel’s back’,” Thierry Albert Wizman, a strategist at Macquarie Group Ltd. in New York, wrote in an e-mail to clients yesterday.
A Bloomberg customized gauge tracking 20 emerging-market currencies fell 0.4 percent to 89.8 today, the lowest level since April 2009. The index has tumbled 9.7 percent over the past 12 months, bigger than any annual decline since it slid 15 percent in 2008.