Dollar Rallies Against Emerging Market-Currencies

By Ira Iosebashvili 

The dollar rose against emerging-market currencies on Thursday, as investors unwound bets on developing countries amid expectations that interest rates will continue to rise in the U.S.

The U.S. currency was recently up 5.3% against the Brazilian real, while notching a 5.5% gain against the South African rand and rallying 4.3% against the Mexican peso. The Wall Street Journal Dollar Index, which measures the U.S. currency against 16 others, was recently up 0.7% to 89.48, its highest since March.

A selloff in government bonds accelerated momentum on Thursday, sending interest rates higher, as investors reacted to the prospect of increased fiscal stimulus under a Donald Trump presidency. The jump in yields is making it less-profitable for investors to run carry trades, a strategy in which market participants borrow in dollars to invest in higher yielding emerging market currencies.

As a result, some market participants are locking in profits on currencies that have shown big gains this year, such as the real and the rand. Many also believe protectionist policies Mr. Trump has advocated will hurt economies that depend on exports to the U.S., particularly Mexico.

"High yielding currencies are now feeling the pain from rising yields," said Paresh Upadhyaya, director of currency strategy at Pioneer Investments.

A conciliatory victory speech by Republican president elect Donald Trump on Wednesday and pledges by central banks to intervene in currency markets if necessary have helped calm investors in the days since the U.S. election.

If markets remain sanguine, many believe, there will be little to stop the Federal Reserve from raising rates in December, a move that would boost the dollar by making it more attractive to yield-seeking investors.

Federal-funds futures, used to speculate on central bank policy, on Thursday showed investors assigned a 76.3% likelihood of a rate increase in December, compared with 71.5% the previous day.

The dollar was up 1.1% at Yen106.86 against the Japanese currency. The euro was down 0.2% at $1.0891.

Write to Ira Iosebashvili at ira.iDollar Rallies Against Emerging Market Currencies [e-mail]

(END) Dow Jones Newswires

November 10, 2016 17:01 ET (22:01 GMT)

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