Summary:

  • Large declines seen in emerging market currencies
  • ZAR, TRY and BRL all dropping strongly against USD
  • MXN whipsaws on NAFTA talks

We earlier noted the strength seen in the US dollar following the latest retail sales figures, and nowhere can these moves be felt more keenly than in emerging market currencies. The yield on the 10-year US Treasury (Tnote on xStation) hit 3.05% shortly after the data dropped which has seemingly reinforced the divergence between the US and the rest of the world. A rise in US yields can be seen to spell trouble for emerging markets raising concerns over debt, with many of them enjoying a strong rise previously when US yields have declined.  

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 The see of green here reflects depreciation in EM currencies which are the quote currency in this case. Source: xStation 

Whilst the increase in US yields is universal amongst the EM space, there are also country specific factors which should be taken into account. Let’s begin with Turkey where the Turkish Lira has hit a record low today after president Erdogan vowed to take greater control of its monetary policy if he wins elections next month. Erdogan was speaking on a visit to London where he restated his commitment to lower interest rates, despite the runaway levels of inflation – in stark contrast to orthodox views on monetary policy.

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 The USDTRY has hit a record high today with the pairs rise seen since 2003 appearing parabolic. Source: xStation

It’s been a pretty volatile afternoon for the Mexican peso with USDMXN whipsawing after conflicting reports of a quote from Mexico’s Guajardo. Newswires, were running a story that Guajardo had said that he “sees a NAFTA agreement before May 17th” which caused an almost immediate gain in MXN and USDMXN fall lower. However, just 8 minutes later this was correct to include “doesn’t” which entirely changes the meaning of the quote and sent USDMXN rallying higher. 

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 USDMXN reversed earlier declines after it became apparent that the news wires had misquoted Mexico’s Guajardo. Source: xStation