EM currencies as a group have already recovered all the ground that they lost in the early stages of the pandemic. Economists at Capital Economics expect that EM currencies in general will rise further this year due to strong appetite for risk and a recovering global economy but several headwinds will limit their appreciation.
Key quotes
“We expect that consumption in developed markets will shift back towards services as vaccinations progress and will probably slow the pace of export growth for EMs.”
“We think ‘high-beta’ currencies that are below their pre-pandemic levels against the US dollar – including many commodity exporters – will not necessarily outperform despite strong appetite for risk. First, Slower vaccine rollouts than in developed markets will hold back domestic recoveries in many of these countries. Second, we do not have a very positive view of commodities despite our expectation for continued economic recovery.”
“Despite these headwinds, we still expect EM currencies in general to rise this year, albeit at a slower rate.”
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