Central banks in the countries in via development are in frontline on the economic scene this week as US Federal Reserve insurance in no rush to raise interest rates sets the stage for an extended rally in emerging market currencies.
Many countries in via Developers are expected to set interest rates this week, bearing in mind that US interest rates will remain low for a longer period, according to a message from Federal Reserve Chairman Jerome Powell in his Jackson Hole speech.
This means that any rise in interest rates in emerging markets could restore luster to interest trading or interest speculation, which could lead to higher earnings, as happened to the Chilean peso last week.
The trading of interest is a process in which investors take in loan in low-interest currencies such as the US dollar, euro or Japanese yen, and then invest these funds in purchasing financial instruments such as bonds or high-interest currencies. Investors profit from the interest rate differential.
While the trading of interest made 0.5% in the first half of questyear, the Bloomberg Interest Trading Index has risen 2% since the end of July.
Emerging market currencies could be in good shape and betting that Brazilian, Russian and Mexican currencies will outperform in the coming months, said Christopher Shells, analyst at Informa Global Markets.
Weak employment data on Friday confirmed speculation that the US Federal Reserve will keep interest rates unchanged even if other monetary stimulus programs begin to scale back.
This would keep the cost of borrowing dollars low, allowing high-yielding securities to be invested overseas, a strategy that could serve investors.
“Powell, at least at this point, appears to be pro-em, which is something we didn’t think we’d see,” said Schroeder Investment’s chief of emerging market debt. “He made it clear that his comments had weakened the dollar which is a strong positive for emerging markets.”
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