Emerging market currencies plunge as dollar soars, domestic woes bite

martes 10 de marzo de 2015 07:42 GYT

By Karin Strohecker

LONDON, March 10 (Reuters) - Emerging currencies sold off further on Tuesday with Turkey's lira and South Africa's rand hitting multi-year lows against a stronger dollar as expectations of a U.S. interest rate hike compound domestic fiscal and political woes.

Buoyed by sturdy U.S. economic growth and a gradual end to the Federal Reserve's easy monetary policy since mid-2014, the dollar index has risen to its highest in almost 11 years.

Many developing markets have meanwhile seen investors grow increasingly cautious as wilting economic prospects have prompted central banks to cut interest rates.

"We are seeing the largest weaknesses in some of the familiar emerging markets like South Africa, Turkey and Brazil," said William Jackson, senior emerging markets economist at Capital Economics. "Politics seems to be playing a role."

Protracted periods of dollar strength have been rare during the 40 year-era of floating exchange rates, but have tended to trigger problems in emerging markets when they have happened. Most notably, in 1997/98, many Asian countries and Russia were forced to dramatically devalue their currencies, with some defaulting on debt.

Because emerging market governments and companies rely disproportionately on dollar borrowing, greenback appreciation makes repaying their loans more expensive, sometimes sowing seeds of default and contagion.

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