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Emerging Currencies

British Pound Rises to Seven Month High, but Holes are Beginning to Appear

You may have noticed that the phrase “seven month high” appears quite frequently in recent Forex Blog posts, regardless of the currency being discussed. I offer this preface as context for Pound’s recent rally because it suggests that the factors driving the Pound are hardly unique from the factors driving other currencies. In other words, “It’s a mixture of a dollar-weakness story and a global-growth story.”

British Pound Rises to Seven Month High, but Holes are Beginning to Appear

You may have noticed that the phrase “seven month high” appears quite frequently in recent Forex Blog posts, regardless of the currency being discussed. I offer this preface as context for Pound’s recent rally because it suggests that the factors driving the Pound are hardly unique from the factors driving other currencies. In other words, “It’s a mixture of a dollar-weakness story and a global-growth story.”

Carry Trade Sends Brazilian Real Skyward

The rally in emerging markets that has unfolded over the last couple months has been especially kind to Brazilian investments, as well as to its currency, the Real, which “has gained 26 percent since March 2, the biggest advance among the six most-traded Latin American currencies. In May, the real climbed 11.2 percent, the strongest advance since April 2003.” The currency has already touched a seven-month high, returning to a level last seen before the collapse of Lehman Brothers send a shock wave through global financial markets.

Carry Trade Sends Brazilian Real Skyward

The rally in emerging markets that has unfolded over the last couple months has been especially kind to Brazilian investments, as well as to its currency, the Real, which “has gained 26 percent since March 2, the biggest advance among the six most-traded Latin American currencies. In May, the real climbed 11.2 percent, the strongest advance since April 2003.” The currency has already touched a seven-month high, returning to a level last seen before the collapse of Lehman Brothers send a shock wave through global financial markets.

Asian Currencies Rally for Third Straight Month

According to a recent Reuters poll, investors are increasingly bullish on emerging market Asian currencies, including the Taiwan dollar, Indonesian rupiah, Singapore dollar, Malaysian ringgit, Philippine peso, South Korean won, and Indian rupee. The Thai Baht wasn’t covered by the poll, but given its strong performance over the last few months, it seems safe to include it in the bunch.

Carry Trade Lifts Hungarian Forint

The rally in emerging markets and accompanying revival of the carry trade can be seen clearly in the Hungarian Forint, which can now claim the distinction of being the world’s best performing currency. You’re probably scratching your head and/or rolling your eyes, but bear with me.

Beginning last July, shortly before the peak of the credit crisis, the Forint began to fall rapidly. It quickly lost more than half of its value against the Dollar, but then again so did a bunch of other currencies. The more relevant comparison is with the Euro, against which the Hungarian currency also fared quite poorly. Despite a 13% rally over the last two months, the Forint is still down 27% from its high last summer.

Central Bank Mulls Intervention to Hold Down Singapore Dollar

While the Singapore Dollar hasn’t been punished to the same extent as its counterparts, the currency was nonetheless dealt a strong blow by the credit crisis, falling 20% in a matter of months, after peaking in 2008. For its part, the Monetary Authority of Singapore (MAS)- which functions as the Central Bank- couldn’t have been happier. The currency had fallen just enough to almost completely offset its rise during the leadup to the crisis.

WisdomTree Unveils New Multi-Currency ETF

On Wednesday, the latest addition the Wisdom Tree family of currency ETFs officially debuted, and in its first two days of trading, the Emerging Currency Fund (CEW) returned an impressive 2.2%. It’s not worth annualizing this figure, but suffice it to say that its performance is already turning heads.

South Africa Hikes Rates, but Interest Rate Differential is Preserved

Yesterday, the South African Reserve Bank (SARB) lowered its benchmark interest rate by 100 basis points to 8.5%. Since December, the Central Bank has now cut rates by 3.5%, from a high of 12%. [As an aside, the SARB uses a repo rate to conduct policy, as opposed to a discount rate. In theory, a repo rate is slightly unique in that it reflects the rate at which the Central Bank will repurchase government securities from commercial banks. The Federal Funds Rate, in contrast, "is the interest rate at which private depository institutions (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions." In practice, both rates function as modulators of liquidity in the financial system.]

Thai Baht Continues to Slide, but Unaffected by Political Turmoil

The value of the Thai Baht continues to erode, and the currency has now fallen 10% in the last year. It recently touched a two-year low against the Dollar. Weighing primarily on the Baht is the global economic crisis, so it is hardly unique in this regard. “The government has forecast the economy will contract by 3% this year, which would be the first time it has shrunk in more than a decade.”

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