Dólares a Pesos:
Brazil has been reporting trade surpluses the past three years, and its account deficit is just 0.
Investors are ruing the day. This morning, the currency is at a new record low of Seen the other way around, 1 peso is now worth just 4. Among the other standouts, the Mexican peso has fallen The Russian ruble has dropped Other emerging-market currencies have not been hit as much.
And clearly, there are going to be some bounces in the future, of the type that have already occurred, visible in the charts above. After the mini-turmoil in and early , the emerging markets once again became a sought-after destination for the hot money. Conservative sounding EM bond mutual funds touted huge yields to US-based investors, powered by dollar-denominated EM bonds, such as the year bonds from Argentina.
But these foreign currency bonds get increasingly difficult to service for these countries when the local currency crashes. These open-end bond mutual funds have to sell the underlying bonds when bond-fund holders are getting cold feet and begin selling that mutual fund.
This type of selling in an illiquid market drives bond prices down further, and thus pushes yields up to where the affected countries have trouble selling new foreign-currency bonds to service the existing foreign-currency bonds. These investors were betting on, and secretly praying for, a falling dollar and continued low interest rates, figuring that the Fed would never be able to raise rates beyond the first few tries.
The dollar cooperated in by falling sharply, but in February this year it reversed course. And the Fed has been methodically tightening since late But the dollar and rising US interest rates are just icing on the cake. Countries like Argentina and Turkey — whose fiscal and economic policies tend to melt down their own currencies — have their own massive problems, unrelated to the dollar and US interest rates, and neither the dollar nor US interest rates can be blamed for those problems, though they create a more unforgiving fiscal environment and narrowed the wriggle room.
Rising interest rates in the US has unleashed competition among banks for deposits for the first time in a decade, and the Fed is allowing it to happen. On Thursday the bank lifted borrowing costs from The peso has suffered with foreign investors moving their money from emerging market currencies into the dollar to benefit from the recent rate rises by the US Federal Reserve. However, in recent days nervous Argentinians have also been cashing in their pesos for dollars.
Dujovne also said on Friday that the government would cut its deficit target from 3. Despite this vulnerability, the two countries do not share the same level of financial risk.
Additionally, Argentina has been issuing public debt in foreign currency to cover its fiscal deficit, which is expected to be about 2.
Its inability to bring down inflation makes its case riskier than other emerging markets, and the weakening of the peso will put even more pressure on inflation. The government already has revised its inflation target for the year, raising it from 15 percent to 26 percent. Private consulting firms are more pessimistic; they say inflation could go as high as 32 percent.
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