Reuters/London


Emerging market currencies slid yesterday, some to their lowest in more than a decade, after a Federal Reserve policymaker backed September for the bank’s first hike in US interest rates.
Asia bore the brunt of comments by Atlanta Fed chief Dennis Lockhart that there was now a “high bar” for leaving rates unchanged. Ongoing weakness in commodity and Chinese markets also remained a strain.
Malaysia’s ringgit, which is dealing with the added pressure of a political scandal, fell to its lowest since the 1997-98 Asian financial crisis. Indonesia’s rupiah slipped to near a 17-year low.
Outside of Asia, South Africa’s rand hit a 14-year trough amid concerns about its mining-heavy economy, and more arrests in a scandal in Brazil sent the real to 3.48 per dollar, its weakest in more than 12 years.
The likelihood of higher interest rates in the US has been sucking funds out of emerging markets, pressuring FX and bond markets throughout Asia, Africa and Latin America.
“The Fed is creating so much uncertainty by its buttock shifting on the timing of this first hike, and that is unambiguously negative for EM currencies and credit,” said Jan Dehn at fund manager Ashmore in London.
“We strongly believe that the first rate hike is going to be good for EM, so every time the Fed delays; we say arrrgghh! Just get on with it.”
China’s issues also remained a focus for markets.
A report from the International Monetary Fund recommended delaying for at least a year, adding China’s yuan to the fund’s ‘SDR’ currency basket.
Chinese stocks also ended a three-day run of gains. They finished down over 2% despite a promise by the central bank to stabilise market expectations and data showing an acceleration in country’s services sector last month.
MSCI’s benchmark EM stock index, which has fallen over 16% since late April, was virtually flat, however. Weaker currencies and tentative signs of improving growth lifted other parts of Asia and emerging eastern Europe.
Eastern and central European assets have come out of the recent emerging market rout largely unscathed compared with the rest of the EM universe.
The bloc, dominated by Poland, the Czech Republic and Hungary, has seen its stock markets outperform MSCI’s benchmark EM index by 13 percentage points this year.