FX Week 26 January 2014 |
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Emerging markets moved centre-stage on Friday, causing risk aversion to boost G10 currency safe havens like the JPY and CHF at the end of the week. Argentina’s decision to step back from its daily intervention to defend the Argentine peso (ARS) was the catalyst for broader pressures on emerging markets to develop. These included Turkey, with the TRY hitting another record low, and Ukraine and Thailand, where political pressures have been building for some time, and which in Ukraine’s case is increasingly spilling over into violence. It also drew in South Africa (the ZAR hitting a 5-year low), India and Indonesia which have large current account deficits and which are most vulnerable to Fed tapering and the shift towards tighter global monetary conditions. In the broader context, renewed violence in Egypt as well as little headway being made in talks over Syria is likely to have further reinforced the mood of risk aversion, while signs of renewed weakness in China’s economy late last week probably did not help matters either, with its PMI index moving back into contraction territory in January.
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