Year-to-date, the worst emerging market FX performers are the Turkish lira (-5%), South African rand (-5.2%), Russian ruble (-5.6%) and Argentina peso (-18.6% on the official rate).
When currency trouble stirs, the public flees to liquid and easily-accessible currency havens. For most of the past 100 years that meant the US dollar but the euro’s safety and accessibility is improving, especially in nearby Turkey and Russia.
(As an aside, the FX weakness in Russia has been vastly under-reported).
Is it a coincidence the euro spike on Thursday when Turkey’s currency hit a breaking point?
Turkey’s central bank is meeting now and is expected to hike interest rates to 10% from 7.75% to draw a line under the lira at 5 pm ET. Watch how the euro reacts. It’s been unusually resilient but if emerging market nerves calm and the Fed tapers, I expected EUR/USD to be the big loser.
