|

EM countries should try to rapidly arrest any downward movement in their exchange rates – Natixis

The cases of Argentina and now Turkey show that when a country’s exchange rate begins to depreciate sharply, it becomes all but impossible to avoid a collapse of its currency. Emerging countries, therefore, need to rapidly arrest any downward movement in their exchange rates, in the view of analysts at Natixis.

A vicious circle is set in motion when an emerging currency begins to depreciate sharply

“If exchange rate depreciation sets in an emerging country, a self-reinforcing depreciation mechanism appears, as: Interest rates cannot be raised to a level that would offset the expected depreciation of the exchange rate; Imported inflation both leads to capital outflows linked to the search for an inflation hedge and worsens the country’s economic situation.” 

“To prevent sharp exchange rate depreciation, an emerging country should therefore rapidly arrest any downward movement in its exchange rate through currency interventions, by regulating speculative positions in the currency, etc.”

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD holds steady near 0.7200 amid escalating US-Iran tensions

AUD/USD consolidates just below its highest level since mid-May, touched on Friday, and hovers around 0.7200 at the start of a new week amid mixed cues. Hawkish RBA expectations continue to act as a tailwind for the Aussie. Meanwhile, the upbeat US NFP report lifted Fed rate hike bets, which, along with escalating US-Iran tensions, underpins the safe-haven US Dollar and caps the currency pair.

USD/JPY stays weak below 156.00 on aggressive hawkish BoJ repricing

USD/JPY stays in the red below 156.00 in the European session on Monday as aggressively hawkish BoJ repricing continues to drive the Japanese Yen higher. Meanwhile, the US Dollar faces headwinds from US debt worries and uncertainty about the Fed's policy outlook ahead of Friday's US CPI data release.

Gold sticks to losses as bears await acceptance below $4,400 amid Fed rate hike bets

Gold attracts some sellers for the second straight day, though it lacks follow-through, and hovers around the $4,400 mark heading into the European session. Moreover, the commodity holds above Friday's swing trough, touched in reaction to the upbeat US monthly employment details, warranting some caution for bearish traders before positioning for any further losses.

Bittensor: TAO eyes $300 amid launch on Raydium, parody meme coin, ChatGPT-6 Astra release

Bittensor is trading in the green on Monday, continuing a steady upward trend over the last five days, with a 25% gain. Social chatter surrounding Bittensor is increasing amid a similarly named meme coin launched on Solana and the release of ChatGPT-6 Astra. The technical outlook for TAO is bullish as momentum strengthens and buyers target the $300 breakout.

Strong US jobs, Middle East tensions and key inflation data ahead
Good morning all, hope you enjoyed your weekend. Markets are starting the week after Friday’s stronger-than-expected US jobs report, which increased expectations that the Fed could raise rates at its September meeting. However, US markets are closed today for the Labor Day holiday, so liquidity should be lower and we may see slower price action.
Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.