Most EM currencies may still struggle even if the Fed ends its rate hikes early next year – HSBC
06.09.2022, 06:49

Most EM currencies may still struggle even if the Fed ends its rate hikes early next year – HSBC

Economists at HSBC maintain their caution towards emerging markets (EM) currencies. In their view, even if the Federal Reserve (Fed) ends its rate hikes early next year, most EM currencies may still struggle.

The SGD is likely to remain more resilient than other EM currencies

“Importantly, the global and EM growth cycle needs to bottom and recover. This does not look likely in the near-term.”

“Inflation, whether headline or core, will remain uncomfortably high through next year. This is a critical challenge for the Fed, which we believe will not be pivoting soon, and so the USD should remain strong overall, including versus most EM currencies.”

“As the growth-inflation mix in emerging economies would be challenging, it is unlikely to see both nominal and real yields being relatively high for EM currencies. As such, EM portfolio inflows and currencies may struggle to improve.”

“From a fundamental perspective, we expect a very small group of EM currencies to show resilience. For example, the SGD is likely to remain more resilient than other EM currencies, because the market expects the Monetary Authority of Singapore to stay hawkish while Singapore’s core inflation is still rising. It will likely take a long while for a broader group of EM currencies to join the camp.”

 

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