Emerging Market Currency Devaluation

The interesting news these days is all about currency devaluation in the emerging markets. Due to the tapering of the Federal Reserve, we now have an unintended consequence. All of the cheap money supplied by the Federal Reserve that went to the emerging markets is now coming home. Some of the emerging market countries are already feeling this pressure of currency outflows. As a result, they are raising interest rates at a very fast pace which collapses their economies.

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Emerging Markets Pray for Wall Street Tumble

What struggling emerging markets need right about now is a big sell-off - in the U.S.  Without a substantial downdraft on Wall Street, the Federal Reserve is highly likely to carry on trimming the amount of bonds it buys every month, continuing at its meeting ending on Wednesday by taking it down another $10 billion to $65 billion.  That tapering will accentuate pressure on emerging markets, which have suffered substantial losses on currencies and securities with investors increasingly less interested in discriminating between the weak and the more stable.

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