US Dollar rises as emerging markets rout

Buenos Aires-Argentina (Jan 24)  The US Dollar has made gains against the majority of its peers on Friday managing to edge away from a three-week low against the Euro as investors continue to sell off assets in emerging markets. Demand for safe havens such as the ‘Greenback’ climbed after the Argentine Peso saw its sharpest decline in 12 years and the Turkish Lira tumbled to another record low. Emerging markets have been hammered by speculation that the Federal Reserve will continue to scale back its bond buying programme and as recent data releases out of China showed that the world’s second largest economy could be slowing.

“The trouble in emerging markets should benefit the US Dollar. There may be Dollar demand in the market to pay bak short-term loans which will now be called rather than re-financed. What is interesting is that it has taken a reasonably modest increase in real interest rates in the US for emerging markets to be found out,” said the head of emerging-market cross-asset strategy at UBS.

The Argentine Peso tumbled by 13% to 7.8825 per US Dollar yesterday as the country’s Central Bank scaled back attempts to support the currency with Dollar sales. Turkey’s lira slid to a record as the central bank carried out its first unscheduled intervention in more than two

The Lira has received a battering in recent months due to the Fed speculation and as a corruption scandal surrounding Prime Minister Reecep Erdogan’s cabinet undermined confidence in the Turkish economy.

Demand for safe havens also saw support from the escalating anti-government violence in Thailand and Ukraine.