Posted 1/18/2024, 10:11:58 AM
Emerging Market Currencies Rally Losing Steam, Raising Concerns Over Premature Fed Rate Cut Expectations
- Emerging market currencies are a proxy for general risk sentiment and very sensitive to USD strength/weakness
- Emerging market currencies bottomed in October 2022, rallied over 16% since, but now showing signs of exhaustion
- Several key emerging market currency pairs like USDZAR, USDKRW, USDPLN, USDMXN, USDBRL trading at key support levels and could see USD strength
- Market expectations of Fed rate cuts in 2024 may be premature if EM currencies take a hit, which could negatively impact equities
- Cautious on equities until USD weakness reemerges given technical setup in emerging market FX complex