Trouble Ahead for Emerging Economies

Market Trends - 17/08/2015

Among the suffering economies amidst a tumultuous global economic climate, some of the most affected regions are several of the world’s emerging markets. Many of these were aided by zero interest rate policies, but figures on the volume and speed of outpouring foreign investment indicates that the most astute traders are now shifting their strategies to quality from quantity. Brazil is an excellent example of a region that is being affected not only by this trend but also by weak prices of commodities. The Brazilian government is feeling the heat, and has gone so far as to publish false economic data to reign in sentiment. While obviously a poor decision, this economic calamity is spilling into the political realm, as outrage over the corruption of President Dilma Rousseff has sparked protests across the nation. Since the United States announced expectations of an interest rate hike last year, the concurrent reaction of the dollar has seen a collapse in its peer currency the Brazilian Real. The USDBRL pair has experienced a bump of 13% in July and August alone, heavily outlining the troubles facing Brazil and other emerging markets.


Another case of trouble for blossoming markets is exemplified by the current situation in Turkey. The Lira has slid precipitously this last year, with a new high in USDTRY recorded today. The data illustrates a 23% year-over-year loss for the Lira versus the US dollar, as economics and politics become dangerously entangled like in Brazil. The last election in Turkey saw the vote fragment even further, making the formation of a coalition needed to stabilize the economy a pipe dream. This has led to increased disillusionment with the government in the region. Turkey has drawn in over $4 billion worth of foreign investment, yet the rapid outflow of dollars from the nation has sent the Lira lower regardless. Things only seem to get worse as the dollar rises, a confirmation of the dollar’s power in the global environment. The Turkish Central Bank will release its interest rate statement tomorrow, widely expected not to contain a rate cut to 7.25% despite crumbling financial and political footing.

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