Emerging currencies decline

Emerging currencies decline

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The decline of the Icelandic krona by 4.6 percent in relation to the US dollar on Tuesday sent a number of emerging and high-yield currencies down on Wednesday morning as investors reacted to the krona’s decline. Tuesday’s drop in the krona led Fitch to lower Iceland’s country rating to “negative” from “stable” due to its current account deficit and its rising external debt. This downgrade sent the krona down another 3.4 percent on Wednesday to IKr68.26 to the dollar, a 15-month low.

In response to the krona’s activity, the South African rand dropped 1.3 percent to R6.106 versus the US dollar, while the Turkish lira fell 1.3 percent versus the dollar as well, to TL1.3325. In addition, the Indonesian rupiah dropped 1 percent against the dollar to Rp9,350 and the Brazilian real fell 1.9 percent versus the dollar. Meanwhile, the Polish zloty declined 0.5 percent to 3.8094 zlotys to the euro, and the Slovak koruna fell 0.3 percent to SK37.418 against the euro.

At least one analyst said that the sell-offs were spurred by falling global liquidity as interest rates go up, but that the declines would be contained.

Elsewhere, the New Zealand dollar dropped 0.7 percent further to $0.6576 in relation to the US dollar, a new 17-month low. Once again, the decline was blamed on Japanese investors who had until recently been investing heavily in kiwi-denominated uridashi bonds.

The US dollar, meanwhile, was little affected by the release on Tuesday of the minutes of the most recent Federal Reserve meeting. The dollar rose slightly to $1.1881 in relation to the euro and to $1.7393 against sterling before the release of new US inflation data. The dollar remained about the same versus the Japanese yen at ¥118.75.

Sterling remained nearly the same versus the euro at £0.6830 after the release of the minutes of the most recent meeting of the Bank of England.